“All over the city we have huge needs. We need better public transport that works for all of us. We need affordable housing,” said Elizabeth Falcon, speaking into a megaphone in front of the tony downtown Washington, D.C. office building of the Carlyle Group private equity fund.
“But we can’t do those things while these guys are up here making $2 billion a year and paying less on the profits that they make than the folks who are picking up our trash and cleaning our streets and teaching our children.”
Falcon, Executive Director of DC Jobs with Justice, was among leaders of several activist groups, including SPACEs, the Take On Wall Street campaign, and the Patriotic Millionaires, who spoke at a March 23 rally in front of Carlyle’s Pennsylvania Avenue office. Their aim was to hold up the top guys at this fund as prime examples of the need to close a tax loophole that has made obscenely wealthy financial executives even wealthier.
The three Carlyle Group founders — David Rubenstein, William Conway, and Daniel D’Aniello — are each worth $2.8 billion, according to Forbes. They owe a substantial share of their wealth to the “carried interest” loophole, which allows hedge fund and private equity managers to claim most of their income as capital gains rather than ordinary income.
The top tax rate on capital gains is currently 20 percent (plus a Medicare surtax of 3.8 percent), while the top marginal income tax rate has just dropped from 39.6 to 37 percent.
During his presidential campaign, President Donald Trump pledged to close the carried interest loophole. Instead, the new tax law merely lengthened the holding period for assets that qualify for the favorable capital gains rate from one to three years, and some tax experts fear funds structured as partnerships may be able to get around even this modest change.
“These guys here and around the country have gotten a break for too long because they have close ties to Congress, and Congress has cut them a deal,” said rally speaker David Grosso, an at-large member of the DC Council and the champion of a bill to close the loophole for the District of Columbia.
“I continually am told by my colleagues that there’s not enough money. There’s not enough money for housing, there’s not enough money for the poor, there’s not enough money for healthcare, there’s not enough money for education,” Grosso explained. “What I’ve decided to do is join you in your effort to close the carried interest loophole in order to expand the District of Columbia’s bank accounts to make it possible for us to invest more money in the people.”
Grosso’s bill is similar to proposals now pending in seven states (New York, New Jersey, Connecticut, Illinois, Maryland, California, Rhode Island, and Massachusetts) that would apply surtaxes on “carried interest” income to raise revenue for state and local needs and to address the failure to close the carried interest loophole at the federal level. New Jersey Governor Phil Murphy reiterated his support for such a fix in a March 23 speech.
According to a new report by the Hedge Clippers campaign, such surtaxes could raise as much as $223 million per year in the “DMV” region ($152 million for Washington, D.C., $32 million for Maryland, and $39 million for Virginia). For the seven other states, revenue estimates range from $39 million for Rhode Island to $3.5 billion for Wall Street’s home state of New York.
The Hedge Clippers campaign works to expose the mechanisms hedge funds and billionaires use to influence government and politics. Their new report puts human faces on many of the biggest beneficiaries of the carried interest loophole in the nation’s capital.
While the city is known as a political rather than a financial center, the area is home to not only the Carlyle Group behemoth, but several other major investment funds:
- EJF Capital, a $6 billion hedge fund whose CEO, Emanuel “Manny” Joshua Friedman, paid a $1.2 million fine as part of an SEC insider trading case settlement. Friedman and his colleague Neal Wilson are currently financing a PAC to unseat financial industry watchdog Senator Elizabeth Warren.
- DC Capital Partners, an Alexandria, Virginia-based private equity firm that has made a killing investing in military contractors.
- Quantitative Investment Management, a $3.1 billion hedge fund based in Charlottesville, Virginia that specializes in algorithm-based trading techniques designed to drain profits from traditional investors.
- Rock Creek Group, a Carlyle Group spinoff that manages the investments of wealthy clients in private equity and hedge funds. Wells Fargo is a majority owner of the firm.
- Revolution, a D.C.-based venture capital firm co-founded by Steve Case, better known as the man who presided over the failed merger of the company he founded, AOL, and Time Warner. Case’s net worth: $1.3 billion.
- Interprise Partners, a Columbia, Maryland-based private equity firm co-founded by Ben Carson, Jr., the son of Trump cabinet member Ben Carson.
“My family and other families alike want fully funded social services programs that the most vulnerable people in our city need,” Sequnely Gray of DC Jobs With Justice told the rally crowd. “Instead, we’re letting these millionaires and billionaires get away without paying their fair share. But now we have the opportunity to act when Congress won’t.”