The FT has a story about how corporate lobbying groups like the Business Roundtable and the Financial Services Forum aren’t lining up in support of their private equity brethren on the battle over how to tax private equity partners’ paychecks. And why ever would they? Corporate executives have to pay the full 35% income tax rate on their paychecks, even the risky parts like bonuses and stock option gains. But the private equity guys pay 15% on most of what they make. And they expect the CEOs of the world to stand up in defense of that? Actually, yes, they do. Here’s Robert Stewart, vice president of the Private Equity Council:
“I don’t think the potential unintended consequences of this legislation, particularly as it is related to economic growth and development, are fully understood by broad sectors of the business community,” he said.
Well, no, because nobody has any real idea what the economic consequences would be. One might expect that the main effect would be a slight shift away from private equity firms and toward regular old corporations. And again, the private equity guys want the rest of the business community to help them fight that?
They do, however, have New York’s Chuck Schumer on their side, as the NYT points out in its story today on the private equity tax battle:
Mr. Schumer said in an interview that he was torn between the need to protect an industry vital to his home state and the need to generate revenues to finance government programs. He said a tax increase on private equity and hedge fund executives could lead to an exodus of jobs and companies from New York, and even from the country. He said the plan, if enacted federally, would also lead to an increase in New York State tax that would further bear down on the industry. He said he worried that the industry was being unfairly singled out.
“Unintended consequences often occur when you do major tax work. And you have to be careful,” Mr. Schumer said in the interview, held in his office just off the Senate floor.
I guess you can make a purely parochial New York case for not wanting to mess with private equity. I’m not sure why anyone outside New York would want to listen to it, though.