Katrina vanden Heuvel: Blackstone Greed (The Nation)

BLOG | Posted 06/18/2007 @ 10:29am
Blackstone Greed


Thank you, Blackstone, for being so greedy.

Your decision to go public in an IPO has, at long last, led to much-needed scrutiny and legislation that may upend the rules of the game in which secretive private equity partnerships have exploited what is legal but should be illegal: a 20 year old tax provision that allows partnerships like Blackstone to pay fifteen percent tax rate on capital gains as a limited partnership-- rather than the 35 percent corporate rate. This is morally and economically criminal--especially at a time when the corporate tax base has already been severely eroded due to offshoring, tax havens and other quasi-legal tax plans devised by these masters of the universe and their accomplices in high-end legal and accounting firms.

After Blackstone disclosed the value of its public offering--putting co-founder Stephen Schwarzman's stake at about $7 billion--the AFL-CIO urged the Securities and Exchange Commission to require Blackstone to register as an investment company. As the Wall Street Journal reported, that would require more disclosure, including of investment strategy. The SEC has not yet ruled on the matter.

Meanwhile Blackstone's public buyout--and its attempt to avoid taxation at the same rates paid by corporations--is so brazen that even Senator Charles Grassley ☼, Republican of Iowa, was moved to note: "Right now, some businesses are crossing the line between reasonably lowering their tax burden and pretending to be something they're not to avoid most, if not all, corporate taxes."

...(snip)...

And here's another loophole to be outraged about: Since Blackstone has already filed to go public, the bill would give it a five year-grace period at the lower tax rate. Why? Does Blackstone's Chief Executive Stephen Schwarzman really need the money? Consider that both Blackstone and Fortress Investment group, which went public earlier this year, have until 2012 to pay the increased tax rate. Can't you see a handful of Senators making a move--between now and then--to repeal the legislation? (Anyone who cares about taking on corporate greed, and restoring sanity, fairness and decency to our economy at a time when workers' wages are stagnant and benefits like health care and pensions are being shredded should express their outrage to Baucus, Grassley and finance committee members over this unnecessary grace period.)

Now, here's a sweet irony and reason as to why justice may be served--that is, why the American people may not be shafted at the expense of Wall Street's Masters of the Universe. It seems that Blackstone (and the private equity crowd, more generally) hasn't been in the pay-to-play game long enough to have spread around the campaign dollars needed to ensure that the bill is derailed. Moreover, they're also weak on the lobbying front. According to the Wall Street Journal's detailed weekend reporting piece, "Unlike industries like telecom that have huge lobbying shops, the private-equity industry formed its advocacy group only a few months ago." .....(more)

The complete piece is at: http://www.thenation.com/blogs/edcut?bid=7&pid=206228