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Dems target Blackstone IPO |
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By Jonathan E. Kaplan
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Posted: 06/22/07 06:42 PM [ET] |
Signaling that private-equity firms fast are becoming the economic bogeymen of Capitol Hill, two prominent Democratic lawmakers called on the Securities and Exchange Commission to delay today’s initial public offering of the Blackstone Group.
Reps. Henry Waxman (D-Calif.), chairman of the Government Oversight and Reform Committee, and Dennis Kucinich (D-Ohio) want to hold up the IPO, which is expected to raise more than $4 billion for Blackstone if shares reach an anticipated $29 to $31 price, because they fear the move could hurt small investors.
“We believe that small investors could be harmed if the SEC allows the IPO to proceed precipitously,” Kucinich, chairman of the subcommittee panel with oversight of the SEC, said. “The Blackstone LP offering poses new risks for small investors, from which they have been protected until now.”
It may be impossible and impractical to stop today’s offering, but criticizing hedge funds has become a staple of Kucinich’s platform. He has disparaged his fellow Democratic presidential candidates for accepting campaign contributions from hedge-fund managers.
With billions of dollars at stake for new tax revenue needed to pay for tax relief and social programs, the Congressional Democratic leadership is looking for more money; changing how the tax code treats private equity firms seems like an appealing option.
This week alone, the chairman of the Senate Finance Committee, Max Baucus (D-Mont.); its ranking Republican, Sen. Chuck Grassley (Iowa); and freshman Democratic Rep. Peter Welch (D-Vt.) proposed changing how the income of private equity managers is taxed. Under current law, they can pay the capital gains rate of 15 percent rather than the top income tax rate of 35 percent on their performance fees.
Following his return from a “Congress in Your Community” event in Berlin, Vt., Saturday, Welch read a newspaper story describing Blackstone’s advantageous tax treatment. Four days later, the lawmaker introduced legislation, H.R. 2785, that would equalize the tax treatment between partnerships and corporations and that would go into effect immediately (Baucus’s bill has a five-year transition period).
“I was unaware of the differences between a corporation and a partnership,” Welch said, adding that he would try to solicit support from his fellow freshmen to push the bill. “It’s a glaring loophole that works to the disadvantage of working families.”
Baucus said Wednesday he would consider reducing the transition period and expects to hold two hearings on the subject before the August recess.
In April, Welch and Grassley traveled to Windsor, Ontario, as part of the Canada-United States Inter Parliamentary Group. The two went for a run along the Detroit River. As Welch considered introducing the legislation, he thought about jogging with his colleague from across the aisle.
“He’s a conservative Republican, I’m a Democrat, but he calls them as he sees them,” Welch said. “I have great respect for him. His being on the bill gave me some confidence.”
In the 2008 presidential election campaign, private-equity firms and hedge funds have drawn scrutiny for their massive earnings and close ties to candidates.
“The political momentum is coming from the large gains being made by people in particular kinds of financial institutions in the context that most peoples’ wages [are] stuck,” said Robert Shapiro, an economist who served in the Department of Commerce in the Clinton administration. “What we ought to do about that figure out how to get wages to rise.”
In the first Democratic debate in South Carolina earlier this month, a skeptical Brian Williams, anchor of “NBC Nightly News,” asked former Sen. John Edwards (D-N.C.) whether “hedge funds make America any better in any way?”
Edwards mostly evaded the question, explaining that financial markets are “an important component” in addressing issues such as healthcare and poverty.
“They play an enormous role in how money moves in this country,” he said. “[Those] who work in financial markets understand — in some ways, at least — what can be done and can play a significant role in trying to lift people up who are struggling.”
Williams then asked Sen. Hillary Rodham Clinton (D-N.Y.) whether “America [is] a better place because of all these burgeoning hedge funds.”
Clinton replied, “Obviously, one of the other reasons we’re a great country is because we’ve learned over the years how to regulate that so nobody gets an unfair advantage — and that we, you know, have a framework within which our free market system operates.” |
