Congressional Dems Cave to Billionaire Equity Fund Managers, Won't Make Them Pay Fair Share of Taxes
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In Detroit last week, just days after announcing major new layoffs at five factories, officials at Chrysler cut a deal on a new union contract that leaves workers with less wage, job, and retirement security -- and executives at Cerberus Capital Management, the private equity firm that now owns Chrysler, with a significantly better shot at hitting the jackpot.
Meanwhile, in Washington, D.C. last week, Senate Majority Leader Harry Reid’s office confirmed that the Senate will take no action this year on closing the tax loophole that saves private equity and other private investment fund managers an estimated $12 billion a year.
Thanks to this loophole, private equity executives -- many of them billionaires -- pay federal taxes on the windfalls they make buying and selling companies like Chrysler at the 15 percent “capital gains” tax rate, not the 35 percent rate that otherwise would apply.
The three leading Democratic Party Presidential candidates -- Hillary Clinton, Barack Obama, and John Edwards -- earlier this year all vowed to end this private investment fund tax loophole, and last week two of them, Obama and Edwards, quickly blasted the Reid decision.
"If there was ever a doubt that Washington lobbyists don't actually represent real Americans," Senator Obama from Illinois noted, "it's the fact that they stopped leaders of both parties from requiring elite investment firms to pay their fair share of taxes."
"We have to end," added Edwards, "the rigged system in Washington."
Under this rigged system, America's 20 top private equity and hedge fund managers last year averaged $657.5 million in income. Overall, after inflation, the fees private equity managers collect have quadrupled since 1994.
Lobbyists for the private investment partnerships, for their part, did not claim victory last week.
"The conclusion that the fight is over and done, that's not the case," Lisa McGreevy of the Managed Fund Association told Politico. "It's not over. It's only just beginning."
"The issue of the buyout industry's multiple tax dodges and their impact on the tax burden of working people is not going away," agreed Stephen Lerner, the director of the Service Employees union's Private Equity Project. "The tax treatment of buyout industry profits is just the tip of the iceberg."
The entire iceberg has considerably increased inequality inside the United States. Kingpins from Wall Street banks, law firms, and private investment partnerships, a recent study by two University of Chicago analysts points out, dominate the ranks of America's highest-income households.
In 2004, executives from non-financial corporations made up just 5 percent of the tax filers in the rarefied air of America's highest-income 0.01 percent. The bulk of the top 0.01 percent, the University of Chicago research suggests, came from the Wall Street economic sector, from "executives of financial companies, employees of investment banks, hedge fund managers, venture capitalists, and private equity investors."
Sam Pizzigati is the editor of the online weekly Too Much, and an associate fellow at the Institute for Policy Studies.