Sound and Fury Over Private Equity

SOUND AND FURY OVER PRIVATE EQUITY
[SOURCE: New York Times 5/20, AUTHOR: Andrew Ross Sorkin]
Despite all the recent hand-wringing over the perils of the boom in private equity, a House hearing on the subject last week demonstrated just how little lawmakers understand the buyout business. One issue went glaringly unaddressed: the issue of taxing carried interest — the huge fees that private equity firms take on the profit of investments. The tax issue was perhaps the biggest elephant in the room. Perhaps that is because the House is going to let the Senate handle that issue. Senators Max Baucus and Charles Grassley, the chairman and ranking minority member of the Senate Finance Committee, seem to be getting deeper into the topic, holding informal meetings with industry representatives and academics. And that is where the real debate over private equity is taking place: backstage, not in the center ring of the political circus. What the debate comes down to is not jobs or inequality, but taxes. At issue is whether private equity should pony up more in taxes, at a rate approaching 35 percent rather than the current 15 percent. In the end, squeezing the wallets of private equity firms -- and not dithering about jobs and the like -- may prove to be the most taxing issue the industry faces. To be sure, however, if a tax hike occurs, expect buyout honchos to start heading to balmier, sandier climes. Jon S. Corzine, the governor of New Jersey and former chief executive of Goldman Sachs, recently provided the most bluntly insightful (and apolitical) view of industry realities when he spoke on “Today” on NBC: “Many of them will go offshore and avoid the U.S. taxation.”
http://www.nytimes.com/2007/05/20/business/yourmoney/20deal.html
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