Can Steve Bannon's fingerprints be seen on tax bill? His aides say yes, others aren't so sure
The survival of a controversial tax loophole that helps the private equity business save billions of dollars a year began with an intense lobbying effort by the industry and ended–at least according to some Washington insiders–with an attempted compromise brokered by an unlikely source, the FOX Business Network has learned.
Aides to Steve Bannon, the populist former senior adviser to President Trump and current chief of the right-wing news site Breitbart.com, say that even though Bannon hasn’t been in the White House for more than three months, his fingerprints are all over the tax reform bill—Trump’s signature, and to date, only, major legislative achievement as president.
In fact these same aides say Bannon was the main architect of a controversial clause in the tax bill that will allow mega-wealthy private equity firms to save an estimated $2 billion a year through what’s known as the carried interest loophole.
Why the Bannonites are trying to give their guy credit for a part of the tax bill that helps the uber-rich is somewhat of a mystery. In a statement to FOX Business, the White House said: “Steve Bannon wasn’t part of the team that worked on tax reform.” Bannon, for his part, declined to comment and directed questions to two of his advisers, who describe his role as essential to what they view is a compromise on the controversial tax loophole that they say makes it more difficult for rich Wall Streeters to completely game the tax code.
Meanwhile, political observers say even by trying to take credit for something like a tax dodge for the rich, Bannon is doing what he needs to do to stay politically relevant after the crushing defeat of one of his anti-establishment candidates, Roy Moore, in the Alabama Senate race. Moore lost to liberal trial lawyer Doug Jones for a Senate seat that hasn’t been held by a Democrat in decades, and the defeat was a stunning setback for Bannon’s push to remake the GOP as a right-wing, populist party that’s tough on immigration and trade by defeating establishment Republicans supported by his political nemesis, Senate Majority Leader Mitch McConnell.
Says Democratic political consultant Hank Sheinkopf: "This is the way for him to tell the business community and wealthy donors that he's very relevant and someone they should be talking to on a regular basis. It's very smart on his part."
The $2.5 trillion private equity business, comprised of Wall Street behemoths Blackstone Group (NYSE:BX), Carlyle Group (NYSE:CG) and KKR & Co. (NYSE:KKR), earns its riches by snapping up public companies, turning them private and revamping them in order to sell these companies years later at an enormous profit. The carried interest deduction allows their investors’ profits to be taxed at a lower capital gains rate as opposed to the higher income tax rate despite these big profits.
Private equity firms say they deserve their tax loophole since they create so many jobs. Inspired by Bannon's populism, President Trump campaigned on a promise to end the carried interest tax break that allows some rich Wall Street investors to be taxed at a lower rate than middle-class families.
While Trump’s senior adviser during the first eight months of the administration, Bannon even advocated raising taxes on the rich as a way for Trump to get Democrats to sign on to a tax bill and give Trump a much-needed legislative victory after his failed repeal of Obamacare. The advisers say Bannon kept on his famous white board a list of to-do items including the words “carried interest” as a reminder that Trump campaigned on getting rid of the loophole.
But as the year went on, Bannon's advisers say he found it impossible to convince members of Congress to take away the tax benefit from the powerful private equity business. This is the same line of reasoning that was recently used by Trump’s National Economic Council Director Gary Cohn, who said the private equity lobby was too powerful for the White House to compete with, and that he and others behind the new tax bill unsuccessfully tried to eliminate the deduction “25 times.”
Just how much Bannon or any Trump official pushed Congress to eliminate carried interest is difficult to prove. But as FOX Business reported, three of the top private equity firms—Blackstone Group, Carlyle Group and KKR & Co.–showered massive amounts of campaign cash into the coffers of Republican leaders in the House and the Senate as these same lawmakers voted for a tax bill that preserves the so-called carried interest loophole, campaign contribution documents show. The lawmakers who were the chief beneficiaries of this money include GOP Senate Majority Leader Mitch McConnell, GOP House Speaker Paul Ryan, Kevin Brady, the Texas Republican who chairs the House Ways and Means Committee, and GOP Senate Finance Committee chief Orin Hatch, all of whom played key roles in the new tax reform package.
The White House, meanwhile, has its own connections to the private equity industry: the industry executives gave $20 million to Trump’s successful 2016 election ($87 million to his opponent, Hillary Clinton), and Stephen Schwarzman, the powerful CEO of Blackstone, became a key economic adviser to President Trump.
Amid the lobby pressure, the Trump White House is now saying it came up with a compromise: money managers must hold their investments for a minimum of three years in order to take advantage of the loophole. Trump aides as well as the people authorized to speak to FOX Business on behalf of Bannon tried to suggest that this compromise all but eliminated hedge fund managers from unfairly using the loophole as they earn tens of millions a year through short-term investing and trading.
But hedge funds don’t often use the carried interest loophole because they take short-term capital gains. Carried interest only applies to long-term gains. Meanwhile, private equity firms that do take long-term gains generally hold their investments a minimum of three years anyway, before restructuring companies.
All of which means the “compromise” has very little teeth, according to tax experts.
So why would Bannon want to take credit for a fix that doesn’t really fix anything? Well, at least according to Sheinkopf, it comes down to the adage, any publicity is good publicity.
“Whether it’s true or not, it helps him stay relevant,” Sheinkopf says.