Venture Capitalists Blame Private Equity For Possible Changes To The Tax Code

from the where's-the-afterparty? dept

Fri, Jul 6th 2007 6:45am — Joseph Weisenthal

The outsize profits currently being made by private equity firms have drawn the scrutiny of the lawmakers who are looking to close a tax loophole that allows these firms to book certain profits as capital gains as opposed to income, which is taxed at a higher rate. But such a move wouldn't just hit big private equity firms, as VC firms, which have a similar structure, take advantage of the same loophole. Speaking at a recent industry conference, venture capitalist Dixon Doll blasted the private equity industry, saying that the huge egos of private equity bosses is what triggered this potential action. While private equity execs are clearly enjoying this current boom, public scrutiny may be a necessary byproduct of their job. After all, unlike venture capitalists, who deal in companies that most people have never heard of, private equity firms frequently take down the country's most well-known brands. Just Tuesday, the Hilton chain of hotels announced that it was selling itself to Blackstone, a move which is certain to garner quite a lot of press. It's not clear that any change in the tax code will ultimately occur, but if the party is ruined, it has less to do with the personalities in the private equity industry than it does the fact that any wildly successful industry is going to draw the attention of politicians.

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11 Comments

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Bill Gerber, 6 Jul 2007 @ 6:56am

Lazy "reporting" at Tech Dirt
Don't take offense but do you guys ever do ANY original reporting? It just seems you sit in your one room and fart up a storm based upon other peoples' work? It shows in the mediocre level of your "analyses."
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Overcast, 6 Jul 2007 @ 7:48am

Can't have anyone making money without Politicians getting their cut, of course.
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Nathan, 6 Jul 2007 @ 7:57am

Uh...Blackstone is now private again?
Didn't Blackstone (http://finance.google.com/finance?q=BX) just become a PUBLIC firm? So wouldn't criticizing them for private equity behaviors be a bit off target? Maybe I missed something.
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- andy, 6 Jul 2007 @ 9:51am
  
  Re: Uh...Blackstone is now private again?
  good call... i was going to ditto that. blackstone did go public recently. bad example.
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mike allen, 6 Jul 2007 @ 9:06am

maybe
if these private equity firms didnt buy half the high street then sack all the staff and close the buissness the towns are littered with empty shops of these asset strippers!!!!!!!!! they should be closed themselves.
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Killer_Tofu (profile), 6 Jul 2007 @ 9:35am

Re #1
Techdirt purposely finds and aggregates all Tech Dirt news for us. I always thought that was one of its primary functions. I am also very thankful for it as I can just stop by here rather than a multitude of other sites to pick out the interesting tech news. Not only that, but here, they also offer differing opinions than most people. They are very objective sometimes list viewpoints that I (and I am sure everybody else at some point or another) would not have originally thought of.
So, keep up the good job TechDirt.
And Bill, if you want to complain about it, just don't visit here, we don't need you.
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Anon2, 6 Jul 2007 @ 10:21am

The fact that Blackstone recently sold a portion of the company in an IPO has nothing whatsoever to do with it still being a private equity investment firm. The term private equity has little to do with the number of owners of the investment firm; it refers to the way the firm makes its investments, which is to reduce or remove the public stockholders of the acquisition target, thereby taking the company private. Moreover, there's little to distinguish these so-called "private equity" firms of today from the notorious LBO firms of the 70s and 80s. Virtually all of the massive private equity transactions in recent years are highly leveraged buyouts. Properly understood, this closing of the loophole in the IRC is a long-time overdue, given that the "capital gains" the managers claim have little relation to actual capital they've invested in the companies they acquire.
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JustMatt, 6 Jul 2007 @ 10:59am

Techdirt bashing
So we all know there is a constant background buzz of whiners/complainers/gripers on the Internet. It seems to me like it is worse at TechDirt and I've never understood why.

I think I've figured it out. All of the people who constantly come here, read the articles, and then post an off-topic bitch about the site itself are old school newspaper reporters. I think they realized they missed the boat the first time everything changed (TV) and are trying to find a way to demean and belittle the Internet revolution.

As an example, I read an AP piece* (clearly copied from the print feed) today about the contest to name the new 7 Wonders of the World. Great piece. Except they neglected to tell the readers the name of the site, where to vote, etc. I presume the writers or editors do not want to send people online. Without that bit of information the rest of the article is kind of pointless.

* http://detnews.com/apps/pbcs.dll/article?AID=/20070706/NATION/707060340
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Kannaida, 6 Jul 2007 @ 6:03pm

You gotta give 'em credit
I mean, how often do you get a chance to COMPLAIN because the somewhat shady practices you're using are going to be cut off? Come On! You're doing something that BARELY keeps within the bounds of legality. I'm sorry your cash-cow is being threatened, but seriously, you should have just bought the damn milk! It's one thing to skirt the law, and I think I'm not alone in saying I've done as much where I could... but to get mad because you got caught? Fess up, give a sheepishly knowing smile, and move on! Be happy you had a loop hole as long as you did, not that someone finally realized it was there and decided to tighten the knot. The knot was always supposed to be that tight to begin with!

I understand the mentality of "you've ruined a good thing for all of us" but this is a bit extreme. Not to mention that this is a glaringly obvious example of the flaws in the U.S. tax system. You can only make so many rules with so many exceptions before people start getting creative with how they find those exceptions.

I'm not saying flat tax is the way to go, I haven't nearly researched enough to start preaching on best practices for tax law, but there *has* to be a better way.
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Mark Williamson, 7 Jul 2007 @ 3:52pm

Private Equity Blame
Blackstone did just go public about two or three weeks ago. But their CEO Stephen Schwarzman is being blamed for bring too much attention on his industry with his lavish lifestyle. He lives in an apartment at 740 Park Avenue in New York, previously owned by the Mayflower descendent George Brewster and John D. Rockefeller Jr. Schwarzman bought it from Saul Steinberg in 2000 for just under $30 million. His place is rumored to be the most expensive apartment in New York City. He also threw a $1 million birthday party etc...and the press have been eating it up. This type of lavish living plus high visibility are the reasons why people think that Private Equity has been one of the reasons for the Tax Code changes.
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Louis, 9 Jul 2007 @ 1:18am

On Private Equity
Certainly any decent hardworking person's heart has to bleed when they read about how easy that dog jew Schwarzman's life has been.

His life is so easy that each weekend he spends 3000 bucks on seafood. Of course the employees who slogged to create wealth for Blackstone get nothing except a few grand at the end of each month. For him getting up at 10 am is probably hard work. The holocause was probably a joke to him.
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