Congress Slaps Blackstone

Update Watch my discussion of the bill on CNBC

The Blackstone Group might want to spend some additional IPO roadshow time in Washington D.C., after two U.S. senators today introduced legislation that would significantly increase the buyout firm’s tax burden. I’m not sure it’s an IPO breaker, but it’s almost certainly an IPO delayer.

Senate Finance Committee Chairman Max Baucus (D-MO) and ranking minority member Chuck Grassley (R-IA) co-authored the bill, which would require private equity firms to pay taxes as corporations (35% rate) rather than as partnerships (15% capital gains rate), when selling shares to the public.

Senate Finance Committee spokeswoman Carol Guthrie says that the bill is “not aimed at any one particular vehicle, but is instead intended to address a trend.” She adds that the bill provides a five-year transition window for partnerships that already are publicly trade, or which already have filed with the SEC to go public. Blackstone would fall into that latter category.

The bill is a giant step removed from changing tax treatment of private equity firms that remain private, but is nonetheless a clear indication that Congress is not considering tax treatment changes in the abstract — as many private equity pros have hoped both publicly and privately. This is very, very real. And Blackstone will now be on the front line.

You can read Sen. Baucus’ statement of introduction here: Baucus_Statement.pdf

You can read Sen. Grassley’s statement of introduction here: Grassley_Statement.pdf