Private equity lobbyists want to hijack child tax credit for more giveaways
A corporate tax break that could give some of Wall Street’s wealthiest people a $200 billion gift over ten years is under consideration as part of the omnibus budget negotiations underway in Congress this month. At issue are provisions of the 2017 Trump tax bill that took effect this year, and the private equity’s lobbying effort to overturn the parts of the law that limit a key tax break.
Most U.S. taxpayers didn’t see much benefit from the Tax Cuts and Jobs Act of 2017 compared to the millions of dollars the bill lavished on the wealthy. One of the few concessions the corporate lobby made to lower the cost of that law was a gradual decrease in the amount of interest corporations can deduct from their tax bill. That provision took effect this year, but lobbyists are trying to reverse it and make those interest deductions permanent.
Worse, they want to hijack negotiations over renewing the child income tax credit for low income families – a highly effective tool in fighting child poverty.
Private equity barons have long manipulated the tax code for their benefit, and have spent millions on lobbying and elections supporting candidates of both parties to preserve their tax havens. The carried interest loophole allows private equity and hedge fund managers to mis-classify their pay as investment income–so they can pay the much lower capital gains tax rate instead of income tax.
If this income were properly classified, they would likely pay the top marginal income tax rate of 37%. Instead, thanks to this loophole, they pay the long-term capital gains tax of 20% – a lower tax rate than what most teachers, healthcare workers, and firefighters face.
Closing this outrageous loophole has long had broad, bipartisan support from the public, and lawmakers from both parties have proposed doing so. But private equity’s allies in Congress have always managed to protect the loophole in closed-door negotiations, most recently over the summer during negotiations on the Inflation Reduction Act.
If questions of tax classification seem trivial, consider this: The Carlyle Group’s David Rubenstein, worth around $3.2 billion, paid an average effective federal tax rate of only 11.4% between 2013 and 2018.
The American Investment Council, private equity’s main lobby group, is pushing hard for the Permanently Preserving America’s Investment in Manufacturing Act (S.1077/H.R.5371) right now. After throwing tens of millions of dollars at candidates during the last election cycle, including to key ally Sen. Kyrsten Sinema, they want their allies in Congress to protect their privileged tax treatment indefinitely.
The corporate giveaways under consideration do not only unfairly privilege wealthy individuals in the tax code. In effect, they also subsidize the dangerous private equity business model of loading companies with debt and looting them for short term profit. An increasing body of evidence has documented private equity exploitation in nearly every sector it enters. This includes 10 times the number of bankruptcies in private equity owned retail companies, tens of thousands of avoidable deaths in nursing homes, and poorer services to vulnerable populations in hospice care, children’s group homes, and homes for severely disabled adults.
As congressional negotiators wrangle over the budget this month, they should resist Wall Street’s call for further special tax treatments. Congress should finally and permanently close the carried interest loophole, and avoid any new giveaways that make already wealthy people even richer.