Blackstone, Other Private Equities Face Corporate Tax Rates in Reform

Photograph by Andrew Harrer/Bloomberg

Rep. Dave Camp (R-MI), chairman of the House Ways and Means Committee proposed restructuring the U.S. tax code on Feb. 26, 2014.

Blackstone Group, KKR & Co. and other publicly traded private equity firms would be forced to go private or pay the corporate income tax under a plan from the top Republican tax writer in Congress.

The proposal from Rep. Dave Camp, released yesterday, would limit publicly traded partnerships to the mining and energy industries. It would raise $4.3 billion for the government over 10 years — more than the changes to private equity managers’ carried interest in Camp’s plan.

Camp’s proposal, which is unlikely to become law this year, removes dozens of tax breaks and uses them to lower individual and corporate rates. He also aims to prevent the tax burden from becoming lighter on top earners, which required him to limit tax breaks that offer particular benefits for the wealthy.

The plan has sparked a furious round of lobbying in Washington as interest groups try to keep proposals that hurt them from gaining political traction.

Steve Judge, president and chief executive officer of the Private Equity Growth Capital Council in Washington, said the group’s initial assessment was that the provision arbitrarily picks winners and losers.

“This discriminatory provision carves out a special few while singling out companies that have successfully invested hundreds of billions of dollars in businesses that employ hundreds of thousands of people across the country,” he said in an e-mailed statement.

Under current law, U.S. corporations are subject to two levels of tax — the corporate income tax of up to 35 percent and personal income taxes on profits when they are paid out as capital gains or dividends.

Partnerships are typically subject to one level of tax and they report their income on their owners’ returns.

Generally, publicly traded companies must be corporations — with a few exceptions, such as publicly traded partnerships and real estate investment trusts.

Private equity firms such as Blackstone and KKR went public over the past decade, attracting additional funding. Other publicly traded private equity firms include Oaktree Capital Group and The Carlyle Group.

If the proposal becomes law, companies would have until 2017 to decide whether to turn private or pay the corporate income tax. Going private would require unwinding complicated agreements that are part of the structure of the businesses.

Camp’s proposal echoes a 2007 plan from Sens. Max Baucus and Charles Grassley that didn’t become law.

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