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.
The legislature has been trying to close the loophole for years. 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 unwavering support has puzzled some observers, such as 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 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 come from California, Massachusetts New York, New York, Texas, and Arizona. But, very few live in Arizona.
Corporate PACs can also help, but they are limited to 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-Suites to Sinema
Sinema ran for Senate in 2018 and has been successful in raking in the money. nearly $2.5 millionAccording to Federal Election Commission (FEC), data analyzed and reported by the Center for Responsive Politics, they came from individuals and PACs working in the securities and investment industries. 86% of this support was provided by executives within the industry.
Sinema is a member of the Senate Banking Committee as well as its securities, insurance and investment subcommittee. 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). Although she is not up for reelection before 2024, her campaign already has taken in $63,000Since last year, from securities and investment-PACs
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:
- Henry R. Kravis, the billionaire cofounder and co-executive chairman of the world’s largestPrivate equity firm ($5,800; the maximum amount for both the primary election and the general election is $2,900). An avid Trump supporter and Republican megadonorHe also gave $1 million to the ex-president’s inauguration fund.
- George R. Roberts, Kravis’ cousin and the billionaire cofounder and co-executive chairman of KKR ($5,800 to Sinema’s campaign and another $5,000 to her leadership PAC, Getting Stuff Done)
- Joseph BaeKKR co-CEO ($5,800)
- Robert LewinKKR partner and CFO who appears to have made his only federal campaign donation to Sinema in the last year ($5,800)
- Ken Mehlman, a partner at KKR and the global head of public affairs. He was a former member in good standing of the George W. Bush administration ($5,800).
The Carlyle Group
- Peter J. ClareDirector and chief investor officer at The Carlyle Group for corporate private capital, he is the sixth-largestPrivate equity firm in the world ($5,800 for Sinema campaign, and $4,200 for her leadership PAC).
- Brian Bernasek, a managing director at Carlyle ($5,000)
- Sandra Horbacha partner and cohead for U.S. Buyout and Growth at Carlyle ($5,800 to Sinema campaign and $4,000.00 to her leadership PAC).
- Jon GrayBlackstone’s president and COO, Jeremy, second-largest private equity firm in the U.S. ($10,000 to Sinema’s leadership PAC)
- Sean Klimczak, a senior managing director and the global head of infrastructure at Blackstone, as well as a board member of the natural gas giant Cheniere Energy who led Blackstone’s investment in the company ($5,800)
- Eli NaglerBlackstone’s senior managing director of private capital ($2,800).
- Alex Katz, managing director of government relations at Blackstone, a former senior aide to Senate Majority Leader Schumer, and a member of the 2019–20 Biden for President National Finance Committee ($1,000 to the campaign and $500 to the leadership PAC)
- Giovanni CutaiaBlackstone’s global head for real estate asset management ($2,900).
CVC, General Atlantic and Bain, and More
- Christopher Stadler, a managing partner at CVC Capital Partners, the world’s fourth-largest private equity firm, who leads the company’s private equity investments in North America ($5,800)
- Bill FordGeneral Atlantic CEO, the seventh-largestPrivate equity firm in the World ($5,800)
- Heather BergerApollo Global Management ($5,800), a senior partner
- Josh BekensteinCo-chair of Bain Capital ($2,800).
- John ConnaughtonBain Capital Private Equity’s global head, co-managing partner, and a GOP megadonor ($5,800)
- David BelluckRiverside Partners general partner ($5,800); three relatives of his lived at the same address each gave $5,000.
These same executives, such as Mehlman, Kravis and Bae, also supported the AIC PAC in this cycle. Sinema has also received large donations by several other organizations. Republican billionaires.
Sinema isn’t the only senator from the United States to reap the rewards of private equity firms. SchumerFor example, he has received even more contributions from the securities and investment sector since 2017. However, he represents New York City and, as the majority leader of the Senate, has an influence that attracts significant campaign contributions.
Private Equity Lobbyists Sign In
Sinema’s campaign also received large donations by lobbyists representing top private equity firms.
Steve Elmendorf, cofounder and subject matter partner, is also cofounder. lobbied Congress directlySinema was paid $2900 on both Blackstone’s and AIC carried interest. This was just as Democrats were trying to pass the now-defunct Build Back Better package. Sinema, as if in direct reply, also opposed closing that carried interest loophole in the legislation. Elmendorf’s colleague Barry LaSala, who also lobbied on the same issue, donated $1,000 to Sinema in April.
Langston Emerson, Cypress Advocacy’s who lobbiedCongress paid $4,500 to Sinema campaign in 2021 for carried interest.
Sinema was also subject to pressure from her allies. The senator was awarded by the U.S. Chamber of Commerce last year an awardAfter she blocked a $15 min wage provision in American Rescue Plan. This year, the Arizona Chamber bought adsLocal newspapers ran a story slamming The Inflation Reduction Act and asking readers to call their senators and tell them to oppose it. The AIC had its own year in the previous year. adsAnd op-edsSinema and other senators should be targeted
Multiple handouts for private equity
The failed carried interest provision could have been effectively preventedInvestment managers cannot treat their own compensation as investment income. They must pay a 37% marginal income tax instead of the 20% long-term capital gains taxes that 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 wanted to increase the holding period to five year this time, knowing that most firms wouldn’t hold an investment for that length before cashing out.
The private equity lobby — and Sinema — have consistently cast the tax loophole as essential for promoting local investments. The argument is that because private equity firms invest heavily into small businesses, raising income taxes on managers would disincentivize them 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.
The economy just shrank for the 2nd quarter in a row – Washington should not move forward with a new tax on private capital that supports small businesses, jobs, and pensions across America. pic.twitter.com/Tprwo0LqAV
— American Investment Council (@AmericaInvests) July 28, 2022
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 special carveoutAccording to the report, this allows large private equity firms to “eliminate the need to count the earnings of their portfolio companies and subsidiaries when calculating whether or no they are subject to the new 15% corporate minimum tax.”The Lever.