WASHINGTON (AP) – As congressional scrutiny of private-equity firms' tax advantages intensifies, the industry continues to beef up its Washington lobbying muscle.
The Private Equity Council, a six-month-old trade group, most recently hired Capitol Tax Partners LLP to lobby on legislative and regulatory issues related to the “tax treatment of partnership interests in private equity funds,” according to a federal disclosure form posted online Monday.
Earlier this year, the council retained Akin Gump Strauss Hauer & Feld and Brownstein Hyatt Farber Schreck to represent the industry on tax and other issues.
Individual private-equity firms — including the Blackstone Group LP, which plans to go public by week's end — have also ramped up their lobbying efforts and campaign contributions to influence tax policy. Ogilvy Government Relations received $240,000 in fees from Blackstone in 2006, according to disclosure forms filed with Congress.
A bill introduced last week by Sens. Max Baucus, D-Mont., and Charles Grassley, R-Iowa, would close a perceived loophole that gives private-equity firms and other partnerships that go public a big tax advantage over corporations.
The two-decades-old tax provision in question allows investors in publicly traded partnerships to pay capital-gains taxes of 15 percent on their share of the firm's income. Corporations, meanwhile, have a double layer of taxation: they pay income tax at a rate of 35 percent and investors in them pay 15-percent capital-gains taxes on their profits.
Private equity also faces a pushback in Washington from labor unions, who contend the industry's mega-deals hurt workers, cost jobs and widen the country's income inequality. The AFL-CIO has appealed to the Securities and Exchange Commission to delay Blackstone's planned initial public offering and to regulate it as an investment company.
The SEC has told the AFL-CIO that it is taking the organization's concerns “very seriously” in its review of the IPO, said Vineeta Anand, chief research analyst in the AFL-CIO's Office of Investment.
For now, the Private Equity Council has not taken a public position on the Baucus-Grassley legislation. Council spokesman Robert Stewart said the group is instead focusing its efforts on maintaining the existing tax rate on “carried interest,” or profit made by the general partners in a private equity firm.
When a private equity fund sells a company, the general partner is entitled to 20 percent of the profit or carried interest that is taxed at a 15-percent rate rather than ordinary income rates of up to 35 percent.
Some consider carried interest as compensation or a performance fee that should be taxed higher. But Stewart said the current tax treatment is fair because there's no guarantee investments will yield any profit for general partners.
“It is no different than any other investment whether it's real estate, oil and gas, or an ice cream store,” he said.
The Baucus-Grassley legislation could double the tax burden for private-equity firms that go public, but, as written, it would exempt Blackstone from the higher rates for five years from the date it goes public. Blackstone said Tuesday it will price its initial public offering Thursday, about a week earlier than expected.
The Capitol Tax Partners lobbying team working on behalf of the Private Equity Council includes several former congressional tax experts, including: Jonathan Talisman, who was assistant secretary of the Treasury in the Clinton administration; Rick Grafmeyer, the former deputy chief of staff of the Joint Committee on Taxation; William “Mac” McKenney, who was staff director of the Ways and Means Subcommittee on Oversight; Joe Mikrut, who was treasury tax legislative counsel in both the Clinton and Bush administrations; and Lawrence Willcox, who was staff director of the Senate Republican Policy Committee.
The Private Equity Council's membership also include Apollo Management, Bain Capital, The Carlyle Group, Hellman & Friedman, Kohlberg Kravis Roberts & Co., Madison Dearborn Partners, Providence Equity Partners, Silver Lake Partners, Texas Pacific Group and Thomas H. Lee Partners.