Private equity firms lobbied tax reform bill as carried interest survives
FOX Business’ Charlie Gasparino discusses how private equity firms lobbied to keep the carried interest loophole in the GOP tax reform bill.
The private equity industry maintained its grip on congressional leaders in 2017, spending exorbitant amounts on lobbying, especially to influence the tax reform bill and maintain the carried interest deduction, FOX Business has learned.
At least six private equity groups attempted to sway congressional lawmakers as they put together the tax reform bill, also known as the Tax Cuts and Jobs Act, and other major pieces of legislation throughout the past year. More than $1 million was spent on lobbying by the PE industry, including by their powerful lobbying arm, the American Investment Council (AIC), which dished out over $600,000, as well as one of the biggest firms in the United States, the Carlyle Group, according to a list distributed by the Center for Responsive Politics.
“The private equity industry, like all other U.S. businesses, was watching the tax reform process very closely. As the industry trade association, the American Investment Council was engaged throughout the tax reform debate. We advocated for a pro-growth bill that would support long-term investing,” Laura Christof, an AIC spokeswoman told FOX Business.
“While the bill requires some trade-offs from all industries – including private equity – we believe it will help our industry continue to provide long-term returns for pension funds, endowments, and other institutional investors that rely on private equity for strong performance,” she added.
A spokesman for the Carlyle Group declined to comment.
Smaller investment firms lobbying congress included Macquarie Infrastructure and Real Assets Inc., Main Street Capital Corp. and Leonard Green & Partners LP according to lobbying disclosure reports reviewed by FOX Business. The sixth group was the Institutional Limited Partners Association, an organization that provides research to private equity executives. None of these smaller investment firms returned requests for comment.
The newly released documents show the issues each company was trying to focus on as they started spending lobbying fees, with one of the top priorities clearly being to retain the private equity businesses coveted loophole known as carried interest.
The provision let’s private equity and hedge funds take some of their funds’ profits as personal income but only pay the relatively low long-term capital gains tax on it. Without that provision, they would have to pay a higher personal income tax rate of 37 percent. Cumulatively, this loophole saves these firms around $2 billion a year.
Lawmakers on both sides of the aisle have long railed against the provision as a benefit for the rich, and there were continued calls that went as high up as President Donald Trump for its removal. During the 2016 presidential campaign, then-candidate Trump said he would end the deduction for everybody during his populist push to win the White House while noting that average families pay a higher income tax rate than executives from this industry.
But the private equity business has been successfully fighting to retain the loophole for years. Through a combination of lobbying key congressional leaders, and as FOX Business first reported, apparent targeted campaign contributions to those same leaders, the industry was able to convince the Trump administration and the GOP Congress not to touch the deduction.
The American Investment Council appears to have paid $100,000 to The Duberstien Group Inc., a lobbying company founded by Kenneth Duberstein, former chief of staff to President Ronald Reagan, to help them influence lawmakers on the “Carried interest holding period provisions in tax reform reconciliation,” according to one disclosure form. Duberstein Group assigned some of its most experienced operatives to work with AIC, including Daniel Meyer, current president of the firm and former assistant to the president for legislative affairs under former President George W. Bush.
Meyer did not return requests for comment by the time of publication.
Leonard Green & Partners, a private equity investment firm based out of Los Angeles, were clients of Brownstein Hyatt Farber and Schreck, LLP, a lobbying and legal firm with offices in Washington, D.C. They were paid a hefty fee of $100,000 to focus on “Issues related to the taxation of carried interest for private investment partnerships,” the disclosure form says. They were given assistance by some of the firms most powerful attorneys, including Norman Brownstein, a founding member and chairman of the board of Brownstein Hyatt Farber Schreck.
Brownstein did not return requests for comment.