Washington lawmakers again traded blows with the private-equity industry yesterday over efforts to close a loophole that allows buyout billionaires to pay less tax than everyone else.
At one point, Sen. Gordon Smith (R-Ore.) appeared to take direct aim at Blackstone chief Stephen Schwarzman. Before stepping out for a vote, Smith suggested the whole tax issue was sparked by the “extravagant lifestyle of one man.”
Schwarzman has faced criticism on Wall Street and in Washington for what some consider to be a lavish lifestyle that includes dining on $40 crab legs.
Private-equity firms and some members of Congress argued in hearings yesterday that the proposed tax measures could hurt their investment returns and cut into the savings of many pension systems. That argument suffered a setback after Russell Read, chief investment officer of the California Public Employees’ Retirement System, the nation’s largest pension fund, told lawmakers he didn’t think the tax increase would hurt his investment returns.
Read was mum on whether he supported the increase, but said the bill’s effect on returns “wasn’t a great concern.”
House Financial Services Chairman Barney Frank (D-Mass.) and Rep. Charles Rangel (D-N.Y.) have co-sponsored a bill that would tax the share of profits that private-equity and hedge-fund firm managers receive for their services, known as carried interest, at rates of as much as 37.9 percent, rather than the capital-gains rate of 15 percent.
Another bill in the Senate would raise taxes on certain partnerships that go public, like the Blackstone Group and Kohlberg Kravis Roberts & Co., to a top corporate rate of 35 percent.
Private equity and hedge fund executives said yesterday that a tax hike could cause them to list their shares overseas and weaken the global competitiveness of U.S. financial markets.