Democratic presidential hopefuls are “playing the class warfare card” by supporting tax increases on private-equity and hedge-fund managers, says Robert L. Johnson, the billionaire founder of Black Entertainment Television, who warns the hike would hit minority-run investment firms.
“I believe there’s a tendency of certain members of the Democratic Party to pursue tax changes as part of some soak-the-rich strategy without thinking about the longer-term consequences to the overall economy,” Johnson told The Hill.
Sens. Hillary Rodham Clinton (N.Y.) and Barack Obama (Ill.) and former Sen. John Edwards (N.C.), the leading contenders for the Democratic presidential nomination, have all come out in favor of the tax hike, which would treat “carried interest” as income. The proposed change has been seen by many as affecting only Wall Street’s super rich, but
Johnson said it would have wider consequences.
Johnson told The Hill that it would make it tougher to lure minority talent from the top investment banks, creating more barriers for minority-run firms to compete: “Investors are skeptical already about the ability of minorities to manage funds and, if you don’t have the best and the brightest, you’re going to be in worse shape.”
He added that minority-run firms pour crucial capital into blighted areas “where many of the bigger funds don’t want to go because they don’t want to navigate the landscape or the relationships.”
An established Democratic donor who launched two investment funds after selling his television network for billions, Johnson is urging minority private-equity managers to lobby members of the Congressional Black Caucus (CBC) to oppose the measure, which would raise the tax on private-equity managers’ carried interest from the capital gains rate of 15 percent to ordinary income rates as high as 35 percent.
Johnson has shared his concerns with Rep. Charles Rangel (D-N.Y.), the Ways and Means panel chairman, who is the sponsor of the legislation, along with Rep. Sandy Levin (D-Mich.). He said he also plans to meet with Ways and Means member Stephanie Tubbs Jones (D-Ohio) and Rep. James Clyburn (D-S.C.), the Democratic whip.
Johnson’s campaign isn’t limited to black lawmakers or Democrats. On Thursday, he met Rep. Eric Cantor (R-Va.), a Republican leadership member who is leading the charge against the legislation in the House. “I’ll meet with anybody if they happen to be supportive of an issue I’m concerned about,” Johnson said, citing his collaboration with Sen. Jon Kyl (R-Ariz.) on pushing for an end to the estate tax.
Other minority fund managers are raising their concerns about the proposal on Capitol Hill. Craig Huffman, a black man whose firm invests in real estate in neglected areas of Chicago, has flown twice to lobby members of Congress on the issue, meeting with Levin, Rep. Jim McCrery (R-La.), the Ways and Means ranking member, and tax staffers for Sens. Harry Reid (D-Nev.) and Richard Durbin (D-Ill.), the Senate Majority Leader and Whip, among others.
Huffman, who started his four-person firm in 2006, expects to raise $25 million in capital by year end that he plans to pour into $100 million worth of real estate in neglected Chicago neighborhoods. “Our story, I think, has shocked a lot of congressmen and senators because they haven’t talked to a guy like me,” he said.
Huffman reflected that minorities were “just now getting into the game” while the tax rules have been in place for a number of years. He said he has urged lawmakers who are concerned about the equity of the tax system to consider measures that won’t affect fledgling entrepreneurs like himself: “If your goal is to go after the wealthy, then just do that.”
Levin said he had a “really useful conversation” with Huffman but insisted his proposal wouldn’t reduce incentives for investment in economically depressed areas and that, in any case, such concerns should be addressed apart from legislation to reduce inequities in the tax code.
“We’re not changing the tax rates on investment. It’s not going to affect the [tax] credits on investment that are available for underserved areas. If we need more credits, we should deal with them specifically,” Levin said.
On Friday, a handful of CBC members on the Ways and Means and Financial Services committees met with three black fund managers as well as a representative from the National Association of Investment Managers, a trade group that advocates investment in minority-run businesses.
Rep. Greg Meeks (D-N.Y.), a member of the centrist New Democrat Coalition who is known for taking a pro-business stance on many issues, set up the meeting. Although he has yet to take a stance on the tax proposal, Meeks said he is leading an effort to educate fellow CBC members on the “unintended consequences” of the proposal on minority fund managers.
“We want to make sure that the rich pay their fair share of taxes but I also want to make sure there isn’t a barrier to entry for minority-owned firms,” he said. He added that he intended to set up a meeting with minority fund managers and the whole CBC. He also said that he has urged Rangel to include a minority fund manager as a witness in hearings that the chairman has said he will hold on the issue of “tax fairness.”
This is not the first time that black entrepreneurs have sided with Republicans on a tax issue. In 2001, a group of black business leaders led by Johnson took out ads in The Washington Post and The New York Times calling for a phase-out of the estate tax. The ads said that abolishing the tax would help close the wealth gap between black and white families.
Cantor welcomed Johnson’s support in his fight against the tax proposal, saying he agreed the proposal would hurt minority-run firms. “It demonstrates again that this measure doesn’t just target the Wall Street investment class,” he said.
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