After Washington lobbying efforts have been all but exhausted, private-equity players are eyeing a grassroots approach to combating proposals aimed at hiking taxes and stripping them of billions in profits.
The latest plan being promoted by the Private Equity Council, a trade group that represents the biggest US buyout firms, is urging members to tout the industry’s successes and demonstrate that private equity can be a force for good, sources tell The Post.
For months, buyout big shots have been battling proposals floated on Capitol Hill that would impose higher taxes on profits they make from buying and selling companies, known as “carried interest.” The proposed hike could generate as much as $18 billion in tax revenue, according to estimates.
Betting that a grassroots campaign will prove more effective at beating back the tax proposal than the push in Washington, the council is asking fund managers to invite local congressional reps to visit PE-owned businesses and plants and “showcase some of the industry’s success stories” — as one PE official described — during lawmakers’ August recess.
Sources said the council pushed buyout execs on the campaign during a conference call, explaining that in the midst of jobless recovery, a tax hike on private equity could result in unintended consequences like more job losses and exacerbate the unemployment crisis.
“Everyone knows what this [tax hike] means for the big PE firms, but it’s small business that would really be hurt by these moves,” said one PE official.
A spokeswoman with the PE Council declined to comment on the call, saying the council doesn’t comment on specific legislative efforts.
“What has become clear is that more and more independent voices like [audit firms] KPMG and Ernst & Young are pointing out the unintended consequences of proposed carried interest and enterprise value taxation, which in turn are triggering broader opposition and concerns from small businesses, family partnerships and corporations,” the spokeswoman said.
Carried interest represents the 20 percent or so share of any profits from deals that private equity and hedge funds get to keep. Fund managers are supposed to get the majority of their pay from carried interest.
Currently, carried interest is not taxed as income but at the lower capital gains rate of 15 percent, but some Washington proposals are pushing to have that portion taxed as income, or 35 percent rate.
The tax proposal has been looming within a larger bill that would grant an extension of unemployment benefits for one year. That bill could pass sometime this year. But even if it doesn’t, PE bigwigs fear a tax hike will surface elsewhere.
At this point, the tax provision has major hurdles to overcome given the number of industry groups opposing it in addition to private equity groups. Those lobbies include oil and gas and real-estate partnerships, as well as companies that argue the proposal would negatively affect their businesses.