Thank you, Blackstone, for being so greedy.
Your decision to go public in an IPO has, at long last, led to much-needed scrutiny and legislation that may upend the rules of the game in which secretive private equity partnerships have exploited what is legal but should be illegal: a 20-year-old tax provision that allows partnerships like Blackstone to pay a 15 percent tax rate on capital gains as a limited partnership– rather than the 35 percent corporate rate.
This is morally and economically criminal–especially at a time when the corporate tax base has already been severely eroded due to offshoring, tax havens and other quasi-legal tax plans devised by these masters of the universe and their accomplices in high-end legal and accounting firms.
After Blackstone disclosed the value of its public offering–putting co-founder Stephen Schwarzman’s stake at about $7 billion–the AFL- CIO urged the Securities and Exchange Commission to require Blackstone to register as an investment company. As the Wall Street Journal reported, that would require more disclosure, including of investment strategy. The SEC has not yet ruled on the matter.
Meanwhile Blackstone’s public buyout–and its attempt to avoid taxation at the same rates paid by corporations–is so brazen that it has pushed leaders of the tax-writing committees and other legislators to consider proposals to end this little-known tax break.
Senator Charles Grassley (R, Iowa) and Finance Committee Chair Senator Max Baucus, (D, Montana)–not known for being a fierce populist—are now openly acknowledging that private equity firms’ attempt to exploit this loophole has gone too far. Last week, they introduced the Baucus-Grassley bill–with the intent of stopping Blackstone and other private equity firms (and hedge funds and venture capital firms) which may go public from exploiting this tax advantage. This is good news–especially at a time when this country needs new revenues for a serious public investment agenda. The New York Times has calculated that the legislation could more than double the revenue for the peoples’ coffers by increasing the tax burden on private equity firms from $2.3 billion to $5.2 billion. And the figure might be much higher when assets in previous investments are included.