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carried interest loophole

https://www.exposedbycmd.org**/2022/08**/15/kyrsten-sinema-has-many-friends-in-private-equity/

alex k

Last week, Democrats in the Senate and House managed to pass the Inflation Reduction Act—a significant tax, climate, and health care package—but only after appeasing one senator from Arizona by allowing an ongoing tax loophole for investment executives.

For years, lawmakers have attempted to close the carried interest loophole, an income tax arrangement that favors investment managers at private equity, hedge fund, and venture capital firms by allowing them to pay lower taxes—at a rate based on capital gains as opposed to their actual income from labor. 

Once Senate Majority Leader Chuck Schumer (D-N.Y.) worked out a deal with Sen. Joe Manchin (D-W.Va.)—who has repeatedly obstructed Biden’s agenda—it briefly looked like Democrats might succeed in ending the special tax treatment.

But with the need for all 50 Democratic senators to sign on in order for the bill to pass, Sen. Kyrsten Sinema (D-Ariz.) wasn’t about to concede her power. Although the state she represents isn’t home to many private equity firms, she has become the Senate’s leading defender of the industry. This staunch support has puzzled some observers, including *The New York Times*, which acknowledges the campaign contribution connection but questions why the senator doesn’t explicitly explain her support of the carried interest loophole.

A Center for Media and Democracy (CMD) review of federal campaign finance records shows that since the 2018 election cycle, many executives and lobbyists from the nation’s top private equity firms have showered Sinema’s campaign with cash, while also funding industry PACs that donated to her campaign. Many industry donors hail from California, Massachusetts, New York, and Texas, but few, if any, live in Arizona.

Corporate PACs have helped out, too, but these can only give a maximum of $5,000 per election. Together, the many managers who run these firms can give far more—up to $2,900 per election, or $5,800 for the primary and general elections in a given cycle.

With access guaranteed by their contributions, many members of the investment management industry had “numerous in-person meetings” with Sinema and her staff in the weeks leading up to the vote, according to CNBC.

From C-Suite to Sinema

Since running for Senate in 2018, Sinema has raked in nearly $2.5 million from individuals and PACs in the securities and investment industry, according to Federal Election Commission (FEC) data analyzed by the Center for Responsive Politics. And 86% of that support came from individual executives in the industry.

A member of the Senate Banking Committee and its securities, insurance, and investment subcommittee, Sinema has courted private equity titans and received the maximum allowed amount from the PACs of leading private equity firms such as The Carlyle Group, along with the industry’s trade organization, the American Investment Council (AIC). Even though she is not up for reelection until 2024, her campaign has already taken in $63,000 from securities and investment PACs since last year.

Still, the bulk of Sinema’s industry funds comes from executives—the very people who would have been forced to give up their lucrative loophole and pay taxes at a higher rate if she hadn’t blocked the carried interest reform proposal. Among her donors in the 2021–22 election cycle are the following executives from some of the world’s largest private equity firms:

KKR

The Carlyle Group

Blackstone

CVC, General Atlantic, Bain, and More

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Table with 4 columns and 86 rows. Currently displaying rows 1 to 15.

DONOR EMPLOYER OCCUPATION AMOUNT

AMERICAN INVESTMENT COUNCIL PAC $5,000

APOLLO EDUCATION GROUP PAC $1,000

ARONSON, JEFF CENTERBRIDGE PARTNERS INVESTMENTS $5,800

BACON, LOUIS MOORE CAPITAL MANAGEMENT CHAIRMAN $5,800

BAE, JOSEPH KKR BUSINESSMAN $5,800

BARLE, STANKO RENAISSANCE TECHNOLOGIES LLC FINANCE RESEARCHER $600

BARTH, CARIN LB CAPITAL INC. PRIVATE EQUITY $1,000

BEHBAHANI, ALI NEW ENTERPRISE ASSOCIATES VENTURE CAPITAL $1,000

BEKENSTEIN, JOSHUA BAIN CAPITAL INVESTOR $2,800

BELLUCK, AARON N/A NOT EMPLOYED $5,800

BELLUCK, ALEXANDRA N/A NOT EMPLOYED $5,800

BELLUCK, DAVID RIVERSIDE PARTNERS PRIVATE EQUITY $5,800

BELLUCK, ZOE N/A NOT EMPLOYED $5,800

BERGER, HEATHER APOLLO MANAGEMENT FINANCE $5,800

BERNASEK, BRIAN THE CARLYLE GROUP FINANCE $5,000

DONOR EMPLOYER OCCUPATION AMOUNT

ALSIKAFI, ZAID MADISON DEARBORN PARTNERS MANAGING DIRECTOR $2,000

AMERICAN INVESTMENT COUNCIL $9,707

BAE, JOSEPH KKR CO-PRESIDENT & CO-COO $5,000

BAILEY, BRADLEY AMERICAN INVESTMENT COUNCIL VICE PRESIDENT, GOVERNMENT AFFAIRS $2,500

BARATTA, JOE BLACKSTONE GROUP GLOBAL HEAD OF PRIVATE EQUITY $5,000

BARBER, JEFFREY TA ASSOCIATES, INC. MANAGING DIRECTOR $1,500

BARLOW, JARED KLINE HILL PARTNERS LP MANAGING MEMBER $10,000

BARRETT, BRENDAN MADISON DEARBORN PARTNERS VICE PRESIDENT $750

BECKER, MARC APOLLO GLOBAL MANAGEMENT SENIOR PARTNER $5,000

BEGO, MICHAEL KLINE HILL PARTNERS LP MANAGING DIRECTOR $10,000

BERENSON, BRADFORD TPG PARTNER AND GENERAL COUNSEL $2,000

BERK, MICHAEL TA ASSOCIATES, INC. MANAGING DIRECTOR $2,000

BETTEN, ELIZABETH MADISON DEARBORN PARTNERS MANAGING DIRECTOR $1,500

BORO, SETH THOMA BRAVO MANAGING PARTNER $5,000

BRAVO, ORLANDO THOMA BRAVO MANAGING PARTNER $5,000

sinema is not the only U.S. senator to reap rewards from private equity firms; Schumer, for example, has received even more from the securities and investment industry since 2017. But he represents New York City, where many firms are headquartered, and as the senate majority leader, holds a position of influence that naturally attracts significant campaign contributions.

Private Equity Lobbyists Join In

Lobbyists representing the top private equity firms have also given large amounts to Sinema's campaign.

Subject Matter partner and cofounder Steve Elmendorf, who lobbied Congress directly on carried interest for both Blackstone and the AIC, gave Sinema $2,900, including $1,000 last August just as Democrats were attempting to negotiate passage of the since-failed Build Back Better package. As if in direct response, Sinema opposed closing the carried interest loophole in that proposed legislation, too. Elmendorf’s colleague Barry LaSala, who also lobbied on the same issue, donated $1,000 to Sinema in April.

Langston Emerson of Cypress Advocacy, who lobbied Congress on carried interest on behalf of the AIC, gave the Sinema campaign $4,500 in 2021.

In addition to in-person lobbying, Sinema was faced with public pressure from her allies. Last year the U.S. Chamber of Commerce gave the senator an award after she blocked a $15 minimum wage provision in the American Rescue Plan. This year the Arizona Chamber bought ads in local newspapers slamming the Inflation Reduction Act as a job and infrastructure killer and urging readers to call their senators to tell them to oppose the bill. The year before, the AIC ran its own ads and op-eds targeting Sinema and other senators.

Multiple Handouts to Private Equity

The failed carried interest provision would have effectively prevented investment managers from treating their own compensation as investment income, forcing them to pay a 37% marginal tax on their actual income as opposed to the much lower 20% long-term capital gains tax the loophole allows.

The 2017 Republican tax cut bill required finance executives to hold an investment for at least three years—as opposed to the previous one-year requirement—before realizing the gains at the lower tax rate. Democrats had wanted to extend the holding period to five years this time around, knowing that most firms would not hold an investment for that long before cashing out.

The private equity lobby—and Sinema—have consistently cast the tax loophole as essential for promoting local investments. Since private equity firms invest heavily in small businesses, the argument goes, imposing higher income taxes on managers would disincentivize them from making future investments. The AIC made this claim on Twitter, but it’s a fallacy: a tax on a manager's earnings from the firm's investments is not a tax on “the private capital that is helping local employers survive and grow.” It is simply an income tax on hedge-fund managers and other wealthy finance executives, meaning that it’s about their own money and personal bottom line, not the funds available to the firm for investments. [twt]

In the final stages of negotiating passage of the Inflation Reduction Act, Sinema and six other Democrats joined Republicans to give the private equity industry yet another gift—one with an estimated value of $35 billion. The amendment they passed creates a :{special carveout:(style="box-sizing:inherit"):}: that allows large private equity firms "to avoid tallying the earnings of their subsidiaries and portfolio companies when calculating whether or not they are subject to the new 15 percent corporate minimum tax," according to The Lever.

https://www.alternet.org/2022/08/kyrsten-sinema/

Senate Democrats passed a pared-backed reconciliation package on Sunday, but only after a pair of widely supported provisions that would have made it harder for Wall Street tycoons to reduce their tax bills were removed at the behest of Sen. Kyrsten Sinema—the right-wing Arizona Democrat who has taken more than $500,000 in campaign contributions from private equity executives during the current election cycle.

"Remember the days when taking half a million bucks from an industry, and then passing legislation that only benefits that industry, while passing the costs onto everyone else, would be called corruption?" Brown University political economist Mark Blyth asked on social media. "Today it's just lobbying as usual."

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Last week, Sinema agreed to back the Inflation Reduction Act as long as the so-called "carried interest loophole," which benefits hedge fund managers and private equity moguls by allowing their investment income to be taxed at the long-term capital gains rate of around 20% rather than the ordinary top income rate of 37%, was preserved.

Democrats, who needed Sinema's support to pass the filibuster-proof bill through the evenly split Senate, obliged, forgoing a modest reform that would have raised an estimated $14 billion in federal revenue over a decade by increasing the holding period for investments to qualify for preferential tax treatment from three to five years.

As the Financial Times noted Monday, the Arizona Democrat "is a beneficiary of significant contributions from the private equity industry—whose lobbying machine and political influence have grown increasingly powerful over the past two decades."

Citing Federal Election Commission filings, the newspaper reported:

Sinema has received more than half a million dollars in campaign donations from private equity group executives in this election cycle alone, representing about 10% of her fundraising from individual donors. This includes individual donations totalling $54,900 from executives at KKR, $35,000 from Carlyle, $27,300 from Apollo, $24,500 from Crow Holdings Capital and $23,300 from Riverside Partners.

The securities and investment sector as a whole has donated more than $2.2 million to Sinema since she was elected in 2017,according to OpenSecrets. Former U.S. Labor Secretary Robert Reich quipped last week, amid reports of Sinema's plans to undermine her party's efforts to hike taxes on corporations and the wealthy, that Wall Street is "getting a huge return on their investment."

In addition to stripping the carried interest provision from the Inflation Reduction Act, Sinema protected private equity-owned corporations from a new 15% minimum tax on billion-dollar firms.

As The Washington Post reported Sunday:

As originally written, the provision would have required private equity firms to tally profits from their various holdings and pay the tax if the total exceeded the $1 billion threshold.

Sinema, who for over a year has blocked Democratic ambitions to raise taxes, raised objections on Saturday, according to two people with knowledge of the matter, who spoke on the condition of anonymity to discuss private talks. The senator argued that, without changes to the bill, small and medium-sized businesses that happen to be owned by private equity firms would be exposed to the tax, violating a Democratic pledge to hike taxes only on the largest firms. A Sinema spokeswoman said several Arizona small businesses, including a plant nursery, had raised concerns.

Steve Wamhoff, an analyst at the Institute on Taxation and Economic Policy, a progressive think tank, told the Post, "The idea that billion-dollar private equity funds must be protected to save small businesses is absolutely absurd."

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Nevertheless, the newspaper noted, "the last-minute changes mark a significant victory for the private equity industry and an estimated savings of $35 billion over the next decade."

Following the passage of the Inflation Reduction Act on Sunday, the progressive tax reform group Patriotic Millionaires ran a mobile billboard around the Capitol to thank Senate Democrats, with the exception of Sinema, who was denounced for being bought by private equity billionaires. The truck made stops at the offices of the American Investment Council and the Carlyle Group in Washington, D.C.

"Bravo to 49 of the 50 senators who voted today to end an era of rampant criminal tax abuse at the highest levels of American society and American business," Erica Payne, founder and president of Patriotic Millionaires, said in a statement. "In a journey of 1,000 miles, this is an impressive first step."

"Shame on Sen. Kyrsten Sinema, who had to be dragged kicking and screaming across the finish line, carrying water for her private equity overloads to the bitter end," Payne continued. "Thanks in large part to Sinema's obstruction, there's more work to be done, but the Inflation Reduction Act is a monumental step in the right direction."

KYRSTEN SINEMA USED THE WINERY WHERE SHE INTERNED TO FUNDRAISE WITH PRIVATE EQUITY

The Arizona senator, who is blocking tax increases on the rich, spent the summer courting donors who stand to lose under major tax reform.

Daniel BoguslawDaniel Boguslaw

September 26 2021,

THE DEMOCRATIC SENATOR threatening to block the party’s ambitious social policy agenda in order to preserve former President Donald Trump’s tax cuts for corporations and for the wealthy spent last summer interning at a winery owned by the private equity baron Bill Price.

In the summer of 2020, Sen. Kyrsten Sinema, D-Ariz., interned at Three Sticks, a winery in Sonoma, California, owned by Bill Price, co-founder of the private equity leviathan TPG Capital. According to the job description, interns “assist in all facets of harvest work including cleaning and sanitizing equipment, sorting fruit, punchdowns, making basic additions and managing fermentations according to winemaker instructions, barrel work, and other winery-related tasks.”

Sinema’s personal financial disclosures show that she was paid $1,117.40 in wages for her work. But an ensuing fundraiser at Three Sticks, held in August, netted her campaign coffers much more.

Sinema has told Democratic colleagues, according to the New York Times, that she will oppose any tax increases on either corporate or personal rates, essential pillars of the legislation. Her opposition to tax hikes on the rich comes amid a major spending blitz to encourage her to stand against any tax increases on private equity executives or hedge funds.

The same summer that Sinema completed her internship, Three Sticks was one of three stops on a weekend fundraising tour. Tickets to the fundraiser cost $5,000 per guest, with contributions going toward both her own campaign committee and the Getting Things Done political action committee, a leadership PAC used to support fellow congressional moderates such as New Jersey Rep. Josh Gottheimer. Sinema courted major donors that summer, including Lyft CEO Logan Green, Microsoft founder Bill Gates, and of course Price himself, who contributed $5,000.

In the past two years, Sinema has received tens of thousands of dollars in maxed out donations from private equity partners like Price and investment firm CEOs.Now, many of those same senior firm executives stand to lose millions to the IRS if a bill targeting the carried interest tax loophole is included as part of the Senate’s budget reconciliation process. Those executive donors include senior directors at TPG and billionaire Blackstone CEO Jonathan Gray.

Sponsored by Sens. Ron Wyden and Sheldon Whitehouse, the Ending the Carried Interest Loophole Act would require hedge fund managers and private equity executives to pay taxes on their income at the same rates as other workers, ending favored treatment for such executives. Right now, their compensation is not considered income. It is instead classified as a tax deferrable capital gain, subject to far lower rates, despite its near-identical function.

In June, the private equity industry lobby launched a pressure campaign targeting Sinema and fellow Arizona Sen. Mark Kelly to leave the carried interest tax loophole intact.

The Joint Committee on Taxation estimates the bill would raise more than $63 billion over 10 years, serving as an important part of the pay for — the taxes used to offset new spending — in Democrats’ proposed $3.5 trillion budget reconciliation plan. Sinema has repeatedly described the plan as too expensive.

Multiple congressional aides who spoke to The Intercept on the condition of anonymity said that Sinema’s office has been silent on whether or not she will support closing the loophole, despite her concern over the price tag of her party’s budget reconciliation bill and the vast sums the carried interest tax could raise.

BEFORE OPENING HIS winery, Price co-founded TPG, one of the largest private equity firms in the world, in 1992. Despite announcing his departure from TPG in 2006, Price listed TPG as his employer on a 2020 Federal Election Commission filing with the title of “partner emeritus.” A spokesperson for Price told The Intercept, “Bill Price no longer has any affiliation with TPG and has not for a decade.” When shown a copy of the FEC filing, the same spokesperson did not respond for further comment. In 2019, during the college admissions pay-to-play scandal, Price’s connection to the firm resurfaced when he defended Bill McGlashan, the husband of his wife’s sister and a senior TPG partner he brought to the firm in 2004. TPG did not respond to multiple requests for comment.

Last week, Sinema announced explicit opposition to yet another critical budget reconciliation revenue mechanism:Democrats’ drug pricing plan,which various estimates say could save the government between $450 and $700 billion over 10 years. In July, Sen. Mitch McConnell called Sinema’s rejection of the budget reconciliation price tag “very courageous.”

As The Daily Poster first reported, Sinema, who has raised over $500,000 from the pharmaceutical and health products industry, was featured in ads by a pharma-funded dark-money group just before she went public with her opposition to drug pricing legislation. Data from the Center for Responsive Politics shows that since entering Congress, Sinema has also grossed well over $6 million in donations from the finance, insurance, and real estate industry.

Earlier this month, the Chamber of Commerce put out a report claiming that closing the carried interest tax loophole would cost almost 5 million jobs and create billions in tax shortfalls.

“The carried interest loophole rewards one narrow class of workers, fund managers, whose compensation already is in the stratosphere compared to almost everyone else, with a deeply discounted income tax rate. It’s indefensible,” Bob Lord, tax counsel at Americans for Tax Fairness, told The Intercept.

“Carried interest also allows fund managers to defer tax on their compensation until the fund’s investments are sold. The rest of us pay tax on our labor income currently, not years later,” Lord said. “Apologists at the Chamber of Commerce justify this travesty with claims the country would lose jobs if fund managers paid tax at the same rate as the rest of us. By that logic, why wouldn’t we reduce their rate to zero? More jobs, right? Or perhaps the IRS should pay them? Even more jobs, right? How any member of Congress would take the Chamber of Commerce seriously here mystifies me.”

COMPARED TO HER Democratic colleagues and corporate donors, Sinema’s personal financial disclosures are sparse. Her 2020 filing lists two retirement plans, adormant consulting business, and income generated from a teaching job at Arizona State University alongside her paltry internship income. This places Sinema’s personal finances in sharp contrast to the income generated by congressional allies like Joe Manchin, who has grossed millions from his coal interests over the course of the past decade.

When it comes to raising campaign cash though, few outmatch Sinema’s zeal for fundraisers and phone banking. According to multiple Democrats who served with Sinema in the House, she was the only member who seemed to actively love being in the Democratic Congressional Campaign Committee call center, claiming a couch for her sole personal use and complaining to other members when they had to leave to vote.

In 2020, she delivered a keynote speech followed by a fundraiser at SFVegas, the lavish securities conference held at the Aria Resort and Casino in Las Vegas and featured in the film “The Big Short.” Former British Prime Minister Theresa May headlined last year’s conference.

Sinema gave a keynote address at a Women in Securitization event before a fundraising reception sponsored by the Structured Finance PAC, which has donated tens of thousands of dollars to powerful members of the House Financial Services Committee such as Reps. Gregory Meeks and Carolyn Maloney. Sinema’s recent votes and public posturing suggest that the cash and advertising blitz launched by financial industry lobbyists may have achieved their intended effect.

In August, Sinema was the only Democrat to vote against an amendment to “establish a reserve fund relating to protecting family farms, ranches, and small businesses while ensuring the wealthy pay their fair share.” A day later, she voted against “a reserve fund relating to increasing the progressivity of the tax code.”

Sinema’s dramatic rightward shift toward the barons of finance and pharmaceuticals at the cost of progressive tax reform stands in sharp contrast to her childhood origin story, in which she talks about having grown up in an abandoned gas station without electricity or running water, at one point living out of a car.

In response to a colleague’s expression of support after anNPR story detailing her family’s struggles with financial hardship, Sinema, then a representative, speaking to colleagues in the Democratic cloakroom just off the House floor, deadpanned: “Yeah, voters love that stupid shit. They eat it up.”