February 23, 2012, 12:58 AM EST
By William Selway and Martin Z. Braun
Feb. 23 (Bloomberg) — Shirley Kimber walked off the production line from her $17.56-an-hour job at a Birds Eye Foods plant in Fulton, New York, for the last time in November.
The new owners, Pinnacle Foods Group LLC, a company held by the private equity firm Blackstone Group LP, closed the factory and fired 270 workers. Kimber, 64, got eight weeks severance for her 12 years on the job and lives with her 37-year-old unemployed daughter in the rust-belt town of about 12,000, northwest of Syracuse.
“They just used us. That’s exactly what they did,” Kimber said. “And then they kicked us to the curb.”
While the closing killed union jobs, it may also help protect the retirement benefits that organized labor bargained for on behalf of public employees.
In addition to Blackstone, the world’s largest buyout firm, New York State’s two public employee pensions and four New York City pensions stand to gain from the drive for higher profits at Pinnacle foods. The retirement funds poured $920 million into the $20 billion Blackstone fund that owns Pinnacle, which took over Birds Eye in 2009.
Public pension funds — seeking to boost returns after failing to secure the 8 percent annual investment earnings needed to pay benefits for teachers, police officers and other civil servants — are the biggest source of cash for private equity firms.
Faster Pace
Companies owned by New York-based Blackstone added jobs at a faster pace than the U.S. economy for the past two years, said Peter Rose, a spokesman for the firm. Private equity’s investment returns “are one of the few ways that pension funds can help keep the promises that they have made to their retirees,” he said.
Pinnacle Foods closed the Fulton plant to cut transportation costs by moving operations closer to suppliers, said Michelle Weese, a spokeswoman for the company.
While firms such as Blackstone and Bain Capital LLC, co- founded by Republican presidential candidate Mitt Romney, have drawn scrutiny for their paring of jobs and the low tax rates enjoyed by executives, the role of taxpayer money in financing their acquisitions has received less notice.
By September 2011, public pensions with at least $1 billion in assets had an average of 11 percent of their money in private equity, more than triple their investments a decade earlier, according to Wilshire Associates, a Santa Monica, California- based consulting firm.
Rising Investment
Such funds have about $400 billion with private equity, 29 percent of the total, according to Prequin Ltd., a London-based private equity research firm. That’s more than twice what was put in by private pension funds, the next biggest investor.
Public pensions “have been the investors that have really fueled private equity’s rise,” said Steven Davidoff, a professor of law and finance at Ohio State University’s Moritz College of Law in Columbus, Ohio. “For those people who complain about private equity, the money is really coming from pension funds.”
Private equity firms buy companies and seek to trim costs, improve operations, boost profits and resell them. The takeovers are typically financed by debt taken on by the purchased companies.
The business has been drawn into the presidential contest as Romney parried attacks from Republican rivals who suggested he built a fortune of as much as $250 million with takeovers that cost workers their jobs. He has disputed this characterization.
Private equity executives, including Blackstone managing director and Pinnacle Foods director Prakash Melwani, have helped stock Romney’s campaign war chests. Melwani declined to comment.
Mayor Objects
Fulton Mayor Ronald Woodward, a Republican, said the Birds Eye takeover has devastated his town, adding that he is troubled to learn that New York pension money helped finance the acquisition.
“Isn’t that a slap in the face to the people in Fulton that are losing their jobs and paying the salaries of those union workers and they’re using their investments there,” Woodward said. “It’s like biting the hand that feeds you.”
Her severance exhausted, Kimber now lives off unemployment benefits of $1,620 a month, plus $100 a month in pension payments, she said. She pays 22 percent of that for health insurance. Her daughter, also named Shirley, has a biology degree but can’t find a job using that specialty. To make a few extra dollars, she babysits and sells books online.
Executive Compensation
Robert Gamgort is chief executive officer of Parsippany, New Jersey-based Pinnacle Foods, which also makes Dunkin Hines cake mix, Vlasic Pickles and Hungry Man frozen dinners.
Gamgort was awarded compensation valued at $5.5 million in 2010 and $11.6 million in 2009. Sara Genster Robling, head of the Birds Eye division, got pay packages worth $1.5 million in 2010 and $2.1 million the previous year. Most of the pay was in company stock. Gamgort and Robling weren’t available for comment, she said.
After the collapse of 1990s Internet bubble left pensions reeling from investment losses, state and local government funds poured money into private equity firms. The financial crisis of 2008 and subsequent recession left U.S. state public pensions $694.2 billion short of having enough assets to pay future benefits by the end of their 2010 budget years, according to data compiled by Bloomberg.
Higher Returns
Private equity deals promised higher returns than stocks and bonds. The 15-year median return on stocks for public pension funds with more than $1 billion assets, before fees, is 5.5 percent annualized as of Dec. 31, 2011, while the median return for private equity in that time period is 9.8 percent, according to the Wilshire Trust Universe Comparison Service.
The deals have served pensions well. New York state’s teachers pension’s private equity investments delivered an annual rate of return of 11.8 percent as of June 30, 2011. New York City’s private equity investments in four of its five pension funds have returns ranging from 9.2 percent to 11.1 percent.
That helps save taxpayers money. For workers and the acquired companies, the benefits can be harder to discern.
A study led by the University of Chicago’s Steven Davis, based on 3,200 private equity deals from 1980 to 2005 and published in September, sought to quantify the impact. It found that employment at acquired companies dropped 6 percent in the next five years relative to stand-alone peers as they shuttered lagging businesses.
‘Creative Destruction’
Still, the companies also added workers by opening new business lines and through acquisitions. The study concluded that such deals accelerated the “creative destruction” of jobs, with a “modest” impact on total payrolls.
“Private equity investors are remorseless in their perspective on business,” said Robert Bruner, the dean of the University of Virginia’s Darden School of Business. “That is a manifestation of the rigors of the capitalist system,” he said. “It accelerates the process.”
Rose Pitcher, 50, experienced that first-hand. After working 25 years at the Birds Eye plant in Fulton, she wrapped up her last shift in November, with eight weeks severance, as Pinnacle moved the plant’s jobs to Wisconsin and Minnesota. Other employers in the area, like an apple-packing plant in Oswego, pay less than half the $17 an hour she was making overseeing the machine sealing packages of Voila! ready-made meals at Birds Eye.
“There just doesn’t seem to be anything out there,” she said.
Portfolio Companies
Blackstone says it has a record of boosting employment overall. In 2011, Blackstone’s portfolio companies added 4.6 percent to their payrolls by creating new jobs, rather than through acquisitions, and increased them 3 percent in 2010, said Rose, the company spokesman. That outpaced job growth in the economy, he said.
“Private equity is a vital source of capital to grow and strengthen companies where public capital cannot or is unwilling to invest,” said Rose.
New York Comptroller Thomas DiNapoli, the sole trustee of New York’s $140 billion retirement fund, declined to comment. New York City Comptroller John Liu declined to comment. John Cardillo, a spokesman for New York state’s Teachers’ Retirement System, declined to comment.
Drivers coming into Fulton are greeted by the red-brick Nestle chocolate factory, where for 103 years the company made condensed milk, semi-sweet morsels and Crunch Bars. It shut down in 2003.
The Nestle factory employed 1,500 people at its height. In 1994, Miller Brewing also shut down a plant just outside of town, putting 900 people out of work.
Taking Down Signs
A couple of years after Miller shut its operations, city officials took down signs on Routes 481, 48 and 3, the thoroughfares entering Fulton, that read: “City with a Future.”
It’s a far cry from the 1930s, when the New York Sun wrote a story about Fulton entitled “The Mystery of Fulton, N.Y., the City the Depression Missed.” Then, factories powered by electricity generated by the Oswego River, which bisects the town, churned out knives, textiles and shotguns. The Fort Stanwix Canning Co. opened a plant in Fulton in 1902. In 1938 it began packaging Birds Eye vegetables.
Two Decades
The Birds Eye plant had survived during the past two decades as it passed from General Foods Corp. to Philip Morris Cos. to Dean Foods Inc. In 1998, Dean Foods sold it to Agrilink Foods Inc. for $400 million. In 2002, Agrilink sold a majority stake in the company for $175 million to Vestar Capital Partners, a private equity firm where Melwani was a managing director. Melwani is now at Blackstone.
Vestar transformed the company. In 2006, it shifted focus to brand-named foods and developing new product lines. It announced that it would jettison most of its non-brand frozen food businesses, affecting five facilities, including three in western New York, that employed about 740. In 2007, Birds Eye borrowed money to pay Vestar and Agrilink a one-time $298.2 million dividend, according to corporate filings.
Vestar turned Birds Eye into a smaller, profitable company. By 2009, Birds Eye earned $54 million on sales of $936 million, compared with a $131 million loss and sales of $1 billion in 2002. Its workforce had shrunk to 1,700 from 4,000, filings show.
In November 2009, Pinnacle Foods, owned by Blackstone, agreed to buy Birds Eye for $1.3 billion. The purchase was financed by $1.15 billion of debt. Blackstone contributed $260 million in equity. Carol Makovich, a Vestar spokeswoman, declined to comment.
$17 Million
Blackstone affiliates were paid $17 million in acquisition fees for arranging the Birds Eye deal. Pinnacle has also paid Blackstone at least $15.5 million in management fees since it was taken over by the firm in 2007, according to company filings.
Under Blackstone, Birds Eye’s sales and profits have risen. In the quarter that ended in September, sales were $248 million, an 11.2 percent increase from the year earlier. The growth was driven by expanded distribution and demand for new products, in addition to lower new product distribution expenses, the company said in a filing.
Charles Murphy, 66, had worked at the Birds Eye plant in Fulton through a series of owners for 22 years before retiring at the end of 2010. He said employees were optimistic that the factory would survive.
Schumer Press Conference
In January 2010, U.S. Senator Charles Schumer, the New York Democrat, held a press conference with workers in Fulton, saying he would keep pressuring the company until all the jobs were safe. Schumer said he called Stephen Schwarzman, Blackstone’s chairman and co-founder, and asked him to spare the factory.
“No one expected that place to close,” said Murphy.
Then Pinnacle started cutting jobs. In mid-2010, it began closing down the Rochester, New York headquarters where 200 worked. That December it announced the closure of a Tacoma, Washington, plant that employed 160 and would shift production to Iowa.
On April 13, 2011, a Wednesday, employees coming to work at the Fulton plant saw a makeshift sign taped to a window: A mandatory meeting for all employees would be held at the Fulton War Memorial, the town’s exhibition hall and gymnasium on the 15th.
A Birds Eye lawyer told those gathered that the company would close the Fulton plant and move some of the jobs to Wisconsin and Minnesota.
Paul Robinson, a 59 year-old who ran packing machines remembered asking managers, “What can we do to keep the plant open?”
‘Minds Made Up’
Nothing, he said Pinnacle managers replied. “They had their minds made up.”
Wisconsin had offered Pinnacle $1.3 million in incentives to shift production to the state. Worker’s compensation costs were also lower — an average of $1,100 per employee in Wisconsin compared with $12,000 in New York, Mayor Woodward said.
While new jobs were added elsewhere, the closures cut the Birds Eye’s payroll by about 300, or 17 percent, as it eliminated more jobs than were added elsewhere, according to Weese, the Pinnacle spokeswoman. She said such costs are common after corporate mergers.
“Synergies are true with every deal. It’s not unique to this particular deal,” Weese said. “It’s less expensive to run one company than two.”
Not all public pensions have stood by as a private equity firms managing their money announced job cuts.
Hugo Boss
In 2010, after hearing that clothing-company Hugo Boss AG was planning to close a factory in a Cleveland suburb where it manufactured suits, threatening the jobs of 300 workers, Ohio’s public employee pension fund contacted Hugo Boss’s owner, London-based private equity firm Permira Advisers LLP.
Ohio’s Public Employees Retirement System had invested $80 million in the Permira fund that owned Hugo Boss. After writing to Permira and not getting a response, the pension fund followed up with another letter saying it would “think long and hard” about investing any more money with Permira, said Hugh Quill, a former Ohio pension trustees. The plant was never closed.
“These guys could have cared less about a plant in Cleveland, Ohio, but they did care about not having institutional investors for their next $500 million offering,” Quill said. “I think it was the right thing to do, given the amount of pain and suffering that was going on in the state.”
The California Public Employees’ Retirement System and public pensions from Maryland and Pennsylvania, which invested in Permira, also lobbied the firm. So did New York City’s pension funds.
Liu’s Letter
“New York’s pension funds do not wish to be investing in job loss or in a global ‘race to the bottom,’” New York City Comptroller Liu wrote in a letter to Permira.
Chris Davison, director of communications for Permira, declined to comment.
In Fulton, Charles Murphy’s wife, Donna, had been out on medical leave since October 2010 when the Birds Eye closure was announced. Still struggling with lung cancer, she lost her job when she couldn’t return to work for the factory’s last two months. That meant she didn’t get any severance pay. She worked there for 25 years.
Pinnacle’s Weese said details about medical leave and severance pay were worked out in negotiations with the employees’ union, Workers United Local 1822.
‘Devoting Your Life’
“You spend that many years devoting your life to the company, coming in to work every day, and they think nothing of you,” said Murphy, who lives in nearby Oswego. “This hurt a lot of people’s livelihoods.”
Fulton mayor Woodward, who was a maintenance supervisor with Nestle when the plant shut in 2003, said his story is another sign of the times.
“What you’re doing by doing that — you are systematically eliminating the middle class,” he said. “You’re going to be rich or you’re going to be poor. There’s no in between.”
–Editors: Jeffrey Taylor, Larry Edelman
To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net; Martin Braun in New York at mbraun6@bloomberg.net.
To contact the editor responsible for this story: Jeffrey Taylor at Jtaylor48@bloomberg.net
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2012年2月22日星期三
Constitution Court OKs two executive decrees
Home » politics » Constitution Court OKs two executive decrees
February 22, 2012 2:59 pmThe Court spent about 50 minutes reading the verdict.
Opposition Democrat party list MP and former finance minister Korn Chatikavanij and Senator Kamnoon Sitthisamarn submitted the petition to the Court for the interpretation of the two decrees.
The first of the two executive decrees involves permission for the government to seek a Bt350 billion loan to finance water management and flood rehabilitation projects while the second is in regard to the transfer of the FIDF’s debt from the Finance Ministry to the Bank of Thailand.
The government has reiterated that the decrees were needed to restore confidence in Thailand after the flood crisis last year.
The opposition questioned the urgency of the decrees, saying the government had enough budget and time to propose the loan decree through the legislative process to the House of Representatives.
The transfer of FIDF’s debt was criticised as government interference with the Bank of Thailand.
The ruling left the government with several bullets to finance its post-flood investment. Economic stability and unavoidable urgency were cited as the reasons for the ruling.
The borrowing executive decree will allow the government to finance 32 long-term flood-protection plans, which require a total investment of about Bt360 billion. The decree empowers the Finance Ministry to borrow Bt350 billion in Baht or other currencies by June 30, 2013.
The second decree will give even more room for investment as the government need not to set aside a budget for principal and interest payment for the Financial Institutions Development Fund (FIDF), starting from the 2013 fiscal year.
In the 2012 fiscal year, Bt68.43 billion was set aside for the purpose. The amount accounted for 2.9 per cent of public expenditures in the year and 16.2 per cent of total investment budget.
2012年2月7日星期二
Private-Equity Lobbying Helped Protect Romney’s Tax Benefits
February 07, 2012, 7:18 AM EST
By Steven Sloan
Feb. 7 (Bloomberg) — The largest U.S. private-equity funds and venture capital firms have relied on a five-year, multimillion-dollar lobbying campaign to protect the carried interest tax break that helped drive presidential candidate Mitt Romney’s 2010 effective tax rate below 14 percent.
With the issue gaining attention in this year’s U.S. presidential election campaign, the investment industry is again girding to defend its preferential tax treatment. Blackstone Group LP alone spent $5 million in 2011 lobbying Congress on issues including the tax treatment of carried interest.
“If anything preserves the status quo, it will be the very heavy lobbying campaign,” said Edward Kleinbard, a law professor at the University of Southern California. “There’s no other reason for the subsidy to survive.”
Opponents of the tax rate for carried interest see this as an opportunity to press for change. Romney released his 2010 tax returns on Jan. 24, revealing he paid an effective tax rate of 13.9 percent on income of $21.6 million.
Romney, a former Republican governor of Massachusetts and co-founder of Bain Capital LLC, has come to personify the debate over whether the carried interest paid to private-equity managers should be taxed at the capital gains rate of 15 percent while ordinary income is taxed at rates as high as 35 percent.
Tax Fairness Debate
Democrats view the carried interest issue as an element of the tax fairness theme that President Barack Obama is highlighting in his re-election campaign. Representative Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, plans to introduce a bill as soon as this week that would tax carried interest at the same rate as regular income, according to spokesman Josh Drobnyk. The bill probably won’t advance in the Republican-controlled chamber this year.
Carried interest is the profits-based compensation that private-equity managers, real estate investors and members of oil and gas partnerships often receive. They get a portion of their clients’ earnings as investment income if the underlying earnings are treated that way. Levin and Obama call carried interest compensation for work, which they say should be viewed like wages for tax purposes.
Private-equity firms invested more than $148 billion in 1,234 U.S.-based companies in 2010, according to the Private Equity Growth Capital Council. The industry says it employs more than 8 million people.
Washington Lobbyists
Companies opposed to changing the tax treatment of carried interest have hired veteran Washington lobbyists to make their case. Wayne Berman of Ogilvy Government Relations is Blackstone’s top lobbyist on the issue. He was an assistant commerce secretary during George H.W. Bush’s administration. Other Ogilvy lobbyists working for Blackstone include Drew Maloney, who was a staffer for former House Majority Whip Tom DeLay, a Texas Republican, and Moses Mercado, the former House Democratic Leader Richard Gephardt’s deputy chief of staff.
Kohlberg Kravis Roberts & Co. hired former Representative Vic Fazio, a California Democrat, to work with Congress on “tax issues affecting private-equity firms and their portfolio companies,” according to lobbying records. The New York-based private-equity company spent $150,000 in the fourth quarter on lobbyists from Akin Gump Strauss Hauer & Feld to work on issues that included tax policy.
Bain spent $80,000 during the fourth quarter to hire lobbyists from Public Strategies Washington Inc. to “monitor tax reform developments,” lobbying records show. Joseph O’Neill and Paul Snyder are lobbying for Romney’s former company.
O’Neill was chief of staff to former Senate Finance Committee Chairman Lloyd Bentsen and helped run the late Texas Democrat’s 1988 vice presidential bid. Snyder was a legislative assistant to former House Speaker Tip O’Neill, the late Massachusetts Democrat.
Budget Deficit
Raising taxes on carried interest compensation wouldn’t do much to narrow the U.S. budget deficit. In its fiscal 2012 budget request, the Obama administration said the proposal to tax carried interest as ordinary income would generate $14.8 billion over 10 years. In December, the deficit stood at almost $1.3 trillion.
The issue has divided Congress along mostly partisan lines. The last time the Senate considered a bill that would have increased taxes on carried interest — in June 2010 — every Republican voted against it, preventing the bill from advancing. Senator Ben Nelson of Nebraska was the only Democrat to oppose the legislation.
Few Defections
The same bill was passed in the House that year with 15 lawmakers in each party voting against their leaders.
As the debate over carried-interest taxation advanced in Congress, the Private Equity Growth Capital Council was formed in February 2007 so the industry could make its case more directly to lawmakers.
The group, whose members include the Carlyle Group LP, based in Washington, and New York-based Blackstone spent about $2.5 million that year lobbying Congress on issues that included measures to tax carried interest at the same rate as ordinary income. It spent $2.2 million on lobbying in 2011.
“We believe that tax policy should incentivize the kind of entrepreneurial risk-taking that private-equity firms take every day,” said Ken Spain, a spokesman for the Private Equity Growth Capital Council, a trade group based in Washington. “We remain vigilant in respect to this issue. Private equity as an asset class is going to be a topic of discussion throughout 2012.”
Spain is a former communications director for the National Republican Congressional Committee.
Comprehensive Overhaul
While the issue will be a central one in the presidential campaign and on Capitol Hill, the taxation of carried interest probably won’t change until Congress considers a comprehensive tax-code overhaul. That would be difficult to enact before 2013.
One potential challenge for private equity is something that otherwise would be seen as a favorable development for the industry: a Romney administration. Ending the preferential treatment of capital gains if Romney wins the presidency could dissolve notions that he is a captive to his former industry, said Martin Sullivan, a contributing editor at Tax Analysts, a nonprofit organization in Falls Church, Virginia.
“It will be much easier to repeal if Mitt Romney becomes president than if Mr. Obama remains president,” he said.
Still, Romney adviser Eric Fehrnstrom told reporters last month that the Republican presidential candidate thinks carried interest should be taxed at the same rate as a capital gain. The candidate has proposed eliminating the tax on capital gains for those with adjusted gross incomes of less than $200,000 a year.
‘Convoluted’ Code
Private-equity executives also rely on fairness arguments to make their case. In a Jan. 27 appearance on Bloomberg Television, Steve Pagliuca, the managing partner of Bain Capital, said the tax code is “convoluted” and “almost unintelligible.”
“We’ve got to have a fair tax code,” he said. “We don’t wake up every day saying ‘Well, what’s the tax code?’ We wake up trying to build great businesses and we pay all of the taxes that are necessary.”
Mark Heesen, president of the National Venture Capital Association, an industry trade group based in Arlington, Virginia, said his industry often reminds lawmakers of its differences from other investors such as private-equity firms. Venture capital firms typically invest in early-stage companies and don’t use as much leverage as private-equity investors do.
Creating Something
“We are able to demonstrate our belief that quintessential capital gains are all about creating something out of nothing,” he said. “That’s what venture capital does.”
Heesen said his message to Congress is that it’s important to maintain the link between carried interest and capital gains, even if the capital gains tax rate increases. Unless Congress acts, such gains will be taxed at 20 percent in 2013. High earners will face an additional 3.8 percent tax on capital gains and other unearned income as part of the 2010 health-care law.
On the other side of the issue is the AFL-CIO, which has lobbied in favor of changing how carried interest is taxed, and is prepared to do so again. Damon Silvers, the policy director for the labor organization in Washington, called the treatment of carried interest a “tax subsidy for leveraged buyouts.”
“We are going to be pressing the carried interest issue at whatever opportunity we get,” he said. “Mitt Romney’s tax returns are the world’s greatest educational tool about the impact of the carried-interest loophole.”
The AFL-CIO spent $1.1 million in 2007 to lobby Congress on issues that included a Senate bill to raise taxes on carried interest.
Lobbying on the carried-interest debate is only part of the reason the tax break has survived, said David Donnelly, the national campaigns director at the Public Campaign Action Fund, a Washington nonprofit group that tracks political contributions. Investors who are paid in carried interest are often the well-heeled donors that members of both parties turn to for campaign contributions, he said.
“I don’t think it’s simply the lobbying,” Donnelly said. “The people who are interested in this particular provision are high net-worth individuals. That’s a constituency that Congress always cares about when they have to raise money to fund their campaigns.”
–With assistance from Richard Rubin in Washington and Cristina Alesci in New York. Editors: Jodi Schneider, Robin Meszoly
To contact the reporter on this story: Steven Sloan in Washington at ssloan7@bloomberg.net
To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net
http://tourism9.com/ http://vkins.com/
By Steven Sloan
Feb. 7 (Bloomberg) — The largest U.S. private-equity funds and venture capital firms have relied on a five-year, multimillion-dollar lobbying campaign to protect the carried interest tax break that helped drive presidential candidate Mitt Romney’s 2010 effective tax rate below 14 percent.
With the issue gaining attention in this year’s U.S. presidential election campaign, the investment industry is again girding to defend its preferential tax treatment. Blackstone Group LP alone spent $5 million in 2011 lobbying Congress on issues including the tax treatment of carried interest.
“If anything preserves the status quo, it will be the very heavy lobbying campaign,” said Edward Kleinbard, a law professor at the University of Southern California. “There’s no other reason for the subsidy to survive.”
Opponents of the tax rate for carried interest see this as an opportunity to press for change. Romney released his 2010 tax returns on Jan. 24, revealing he paid an effective tax rate of 13.9 percent on income of $21.6 million.
Romney, a former Republican governor of Massachusetts and co-founder of Bain Capital LLC, has come to personify the debate over whether the carried interest paid to private-equity managers should be taxed at the capital gains rate of 15 percent while ordinary income is taxed at rates as high as 35 percent.
Tax Fairness Debate
Democrats view the carried interest issue as an element of the tax fairness theme that President Barack Obama is highlighting in his re-election campaign. Representative Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, plans to introduce a bill as soon as this week that would tax carried interest at the same rate as regular income, according to spokesman Josh Drobnyk. The bill probably won’t advance in the Republican-controlled chamber this year.
Carried interest is the profits-based compensation that private-equity managers, real estate investors and members of oil and gas partnerships often receive. They get a portion of their clients’ earnings as investment income if the underlying earnings are treated that way. Levin and Obama call carried interest compensation for work, which they say should be viewed like wages for tax purposes.
Private-equity firms invested more than $148 billion in 1,234 U.S.-based companies in 2010, according to the Private Equity Growth Capital Council. The industry says it employs more than 8 million people.
Washington Lobbyists
Companies opposed to changing the tax treatment of carried interest have hired veteran Washington lobbyists to make their case. Wayne Berman of Ogilvy Government Relations is Blackstone’s top lobbyist on the issue. He was an assistant commerce secretary during George H.W. Bush’s administration. Other Ogilvy lobbyists working for Blackstone include Drew Maloney, who was a staffer for former House Majority Whip Tom DeLay, a Texas Republican, and Moses Mercado, the former House Democratic Leader Richard Gephardt’s deputy chief of staff.
Kohlberg Kravis Roberts & Co. hired former Representative Vic Fazio, a California Democrat, to work with Congress on “tax issues affecting private-equity firms and their portfolio companies,” according to lobbying records. The New York-based private-equity company spent $150,000 in the fourth quarter on lobbyists from Akin Gump Strauss Hauer & Feld to work on issues that included tax policy.
Bain spent $80,000 during the fourth quarter to hire lobbyists from Public Strategies Washington Inc. to “monitor tax reform developments,” lobbying records show. Joseph O’Neill and Paul Snyder are lobbying for Romney’s former company.
O’Neill was chief of staff to former Senate Finance Committee Chairman Lloyd Bentsen and helped run the late Texas Democrat’s 1988 vice presidential bid. Snyder was a legislative assistant to former House Speaker Tip O’Neill, the late Massachusetts Democrat.
Budget Deficit
Raising taxes on carried interest compensation wouldn’t do much to narrow the U.S. budget deficit. In its fiscal 2012 budget request, the Obama administration said the proposal to tax carried interest as ordinary income would generate $14.8 billion over 10 years. In December, the deficit stood at almost $1.3 trillion.
The issue has divided Congress along mostly partisan lines. The last time the Senate considered a bill that would have increased taxes on carried interest — in June 2010 — every Republican voted against it, preventing the bill from advancing. Senator Ben Nelson of Nebraska was the only Democrat to oppose the legislation.
Few Defections
The same bill was passed in the House that year with 15 lawmakers in each party voting against their leaders.
As the debate over carried-interest taxation advanced in Congress, the Private Equity Growth Capital Council was formed in February 2007 so the industry could make its case more directly to lawmakers.
The group, whose members include the Carlyle Group LP, based in Washington, and New York-based Blackstone spent about $2.5 million that year lobbying Congress on issues that included measures to tax carried interest at the same rate as ordinary income. It spent $2.2 million on lobbying in 2011.
“We believe that tax policy should incentivize the kind of entrepreneurial risk-taking that private-equity firms take every day,” said Ken Spain, a spokesman for the Private Equity Growth Capital Council, a trade group based in Washington. “We remain vigilant in respect to this issue. Private equity as an asset class is going to be a topic of discussion throughout 2012.”
Spain is a former communications director for the National Republican Congressional Committee.
Comprehensive Overhaul
While the issue will be a central one in the presidential campaign and on Capitol Hill, the taxation of carried interest probably won’t change until Congress considers a comprehensive tax-code overhaul. That would be difficult to enact before 2013.
One potential challenge for private equity is something that otherwise would be seen as a favorable development for the industry: a Romney administration. Ending the preferential treatment of capital gains if Romney wins the presidency could dissolve notions that he is a captive to his former industry, said Martin Sullivan, a contributing editor at Tax Analysts, a nonprofit organization in Falls Church, Virginia.
“It will be much easier to repeal if Mitt Romney becomes president than if Mr. Obama remains president,” he said.
Still, Romney adviser Eric Fehrnstrom told reporters last month that the Republican presidential candidate thinks carried interest should be taxed at the same rate as a capital gain. The candidate has proposed eliminating the tax on capital gains for those with adjusted gross incomes of less than $200,000 a year.
‘Convoluted’ Code
Private-equity executives also rely on fairness arguments to make their case. In a Jan. 27 appearance on Bloomberg Television, Steve Pagliuca, the managing partner of Bain Capital, said the tax code is “convoluted” and “almost unintelligible.”
“We’ve got to have a fair tax code,” he said. “We don’t wake up every day saying ‘Well, what’s the tax code?’ We wake up trying to build great businesses and we pay all of the taxes that are necessary.”
Mark Heesen, president of the National Venture Capital Association, an industry trade group based in Arlington, Virginia, said his industry often reminds lawmakers of its differences from other investors such as private-equity firms. Venture capital firms typically invest in early-stage companies and don’t use as much leverage as private-equity investors do.
Creating Something
“We are able to demonstrate our belief that quintessential capital gains are all about creating something out of nothing,” he said. “That’s what venture capital does.”
Heesen said his message to Congress is that it’s important to maintain the link between carried interest and capital gains, even if the capital gains tax rate increases. Unless Congress acts, such gains will be taxed at 20 percent in 2013. High earners will face an additional 3.8 percent tax on capital gains and other unearned income as part of the 2010 health-care law.
On the other side of the issue is the AFL-CIO, which has lobbied in favor of changing how carried interest is taxed, and is prepared to do so again. Damon Silvers, the policy director for the labor organization in Washington, called the treatment of carried interest a “tax subsidy for leveraged buyouts.”
“We are going to be pressing the carried interest issue at whatever opportunity we get,” he said. “Mitt Romney’s tax returns are the world’s greatest educational tool about the impact of the carried-interest loophole.”
The AFL-CIO spent $1.1 million in 2007 to lobby Congress on issues that included a Senate bill to raise taxes on carried interest.
Lobbying on the carried-interest debate is only part of the reason the tax break has survived, said David Donnelly, the national campaigns director at the Public Campaign Action Fund, a Washington nonprofit group that tracks political contributions. Investors who are paid in carried interest are often the well-heeled donors that members of both parties turn to for campaign contributions, he said.
“I don’t think it’s simply the lobbying,” Donnelly said. “The people who are interested in this particular provision are high net-worth individuals. That’s a constituency that Congress always cares about when they have to raise money to fund their campaigns.”
–With assistance from Richard Rubin in Washington and Cristina Alesci in New York. Editors: Jodi Schneider, Robin Meszoly
To contact the reporter on this story: Steven Sloan in Washington at ssloan7@bloomberg.net
To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net
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2012年1月23日星期一
Leader of investigation accused of trying to protect his party members
WASHINGTON — The California congressman leading the investigation into whether members of Congress and other government officials received sweetheart home loans from Countrywide Financial Corp. has been accused of trying to protect Republican lawmakers caught up in the probe.
Rep. Darrell Issa, chairman of the House Oversight and Government Reform Committee, said he hoped to get answers to “outstanding public-interest questions” when he issued a subpoena for records about Countrywide’s VIP discount program last year.
“The American people have a right to know the totality of who participated in the Countrywide’s VIP program and what they did in return for access to it,” Issa, R-Vista, said at the time.
But Issa’s committee has declined to publicly reveal the names of three House members whom the subpoenaed records indicate received the discounted loans. Instead, Issa has forwarded the lawmakers’ names to the House ethics committee for review, a practice he previously had condemned.
The House ethics panel operates in private, and the names became public only after they were leaked to the news media and confirmed by the lawmakers themselves. Rep. Elton Gallegly, R-Simi Valley, reportedly received the discounted loans.
Maryland Rep. Elijah Cummings, the oversight committee’s top Democrat, suggested in a letter to Issa last week that he had changed course because the three members in question are Republicans. Rep. Edolphus Towns, D-N.Y., got a discounted loan, but his ties to the program were made public in 2009.
Issa’s spokesman, Frederick Hill, called Cummings’ accusations “a distortion of the facts.”
“The point that Congressman Issa has consistently made is that it is not the purpose of the oversight committee’s investigation to make judgments about members of Congress, whether or not they acted appropriately,” Hill said. “That task basically goes to the ethics committee.
“The purpose of the (oversight) committee’s investigation is to basically look at what happened on a factual basis within the Countrywide VIP program.”
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Rep. Darrell Issa, chairman of the House Oversight and Government Reform Committee, said he hoped to get answers to “outstanding public-interest questions” when he issued a subpoena for records about Countrywide’s VIP discount program last year.
“The American people have a right to know the totality of who participated in the Countrywide’s VIP program and what they did in return for access to it,” Issa, R-Vista, said at the time.
But Issa’s committee has declined to publicly reveal the names of three House members whom the subpoenaed records indicate received the discounted loans. Instead, Issa has forwarded the lawmakers’ names to the House ethics committee for review, a practice he previously had condemned.
The House ethics panel operates in private, and the names became public only after they were leaked to the news media and confirmed by the lawmakers themselves. Rep. Elton Gallegly, R-Simi Valley, reportedly received the discounted loans.
Maryland Rep. Elijah Cummings, the oversight committee’s top Democrat, suggested in a letter to Issa last week that he had changed course because the three members in question are Republicans. Rep. Edolphus Towns, D-N.Y., got a discounted loan, but his ties to the program were made public in 2009.
Issa’s spokesman, Frederick Hill, called Cummings’ accusations “a distortion of the facts.”
“The point that Congressman Issa has consistently made is that it is not the purpose of the oversight committee’s investigation to make judgments about members of Congress, whether or not they acted appropriately,” Hill said. “That task basically goes to the ethics committee.
“The purpose of the (oversight) committee’s investigation is to basically look at what happened on a factual basis within the Countrywide VIP program.”
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Friends of Angelo, Part 2
Four lawmakers have been referred to the House Ethics Committee for receiving special mortgage loans from the notorious “V.I.P.” program of Countrywide Financial. Ethics rules require members to accept loans only “on terms generally available to the public.” It should be of great interest for the public, particularly those mired in mortgage trouble, to see if anything comes out of the Congressional investigation.
The loans were uncovered in a three-year-long inquiry by Representative Darrell Issa, the Republican chairman of the House oversight committee. He denounced Countrywide’s program as a source of “bribery” and “public corruption” when Democrats seemed to be the beneficiaries of the mortgage company’s largess. Now that three of the four House members referred to the ethics committee are Republicans, Democrats are urging Mr. Issa to keep up the good work.
The lawmakers have been identified in news reports as Howard McKeon and Elton Gallegly, both Republicans of California; Pete Sessions, Republican of Texas and the party’s Congressional campaign chairman; and Edolphus Towns, Democrat of New York. All have denied seeking or knowing about the “Friends of Angelo” program set up by Angelo Mozilo, former head of Countrywide.
Mr. Issa is vowing to press forward with his investigation of the loans, wherever it leads, his office insisted. The public should hope for similar dedication from the Ethics Committee.
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The lawmakers have been identified in news reports as Howard McKeon and Elton Gallegly, both Republicans of California; Pete Sessions, Republican of Texas and the party’s Congressional campaign chairman; and Edolphus Towns, Democrat of New York. All have denied seeking or knowing about the “Friends of Angelo” program set up by Angelo Mozilo, former head of Countrywide.
Mr. Issa is vowing to press forward with his investigation of the loans, wherever it leads, his office insisted. The public should hope for similar dedication from the Ethics Committee.
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