Can Obama make private equity pay?

The president wants to increase the tax burden for managing portfolios, but the political will to do so is weak.

By Jason Notte Feb 6, 2013 5:15PM
Image: Stock market Up (Corbis)President Barack Obama really wants to nix tax laws that offer private equity firms like Mitt Romney's Bain Capital a discount. That he's only heard angry investor voices and crickets in response should give him some idea of just how lonely that crusade will be.

With a huge round of spending cuts known as "the sequester" set to bite into both economic growth and job numbers, the president is scrambling to find other sources of income to offset the potential damage.

Fortunately for him and his Democratic cohorts in Congress, the hundreds of millions that private equity firms like Bain make from managing their clients' portfolios are taxed at only about a 20% capital gains rate for investment income rate rather than the 39.6% marginal tax rate.

That's going to cost the U.S. about $1.3 billion this year and $13.5 billion over the next decade, according to the Treasury Department. However, cinching the loophole -- which is more commonly known by the snore-inducing moniker "carried interest" -- is more lucrative politically than it is monetarily.

That reduced rate is a big sound-bite punching bag, especially after Romney admitted during his presidential campaign that it helped reduce his effective tax rate to 14% in 2010 and 2011. While lobbying to close the loophole, Warren Buffett declared that it helped reduce his tax rate to 11% -- which he told Forbes is less than that of his secretary. Back in 2007, the National Women's Law Center estimated that the loophole would save Blackstone Group CEO Stephen Schwarzman $135 million, or enough to fund Head Start educational services for 19,000 low-income children.

That sounds significant, but the $1.3 billion a year lost to that lower tax rate pales when compared to this year's $633 billion Defense Department budget. Democrats have supported boosting the levy on private equity firms, but they've also been looking for fights they can win.

With House Majority Leader John Boehner already drawing the line on tax increases after his party's fiscal cliff compromise, the battle to end "carried interest" faces an uphill climb. That doesn't mean a change in policy is impossible, especially with its primary beneficiaries refusing to keep their mouths shut.

Instead of sitting back, saying nothing and letting opposition to the private equity loophole die a slow, anonymous death in some subcommittee somewhere, Blackstone's Schwarzman went full Scrooge and invoked Godwin's Law to the first audience willing to listen.

"It’s a war," Schwarzman told the board of a nonprofit group in 2010, according to Newsweek. "It’s like when Hitler invaded Poland in 1939."

When that's the opposition, a win for Obama and company isn't beyond the realm of possibility.

More on moneyNOW

Feb 6, 2013 5:45PM
The ship is sinking from a giant hole in the hull. Meanwhile Obama and the rest of the Dems are trying to bail water with a coffee cup.
Feb 6, 2013 6:16PM



ODUMA is looking for ways to get more money, why doesn't he cut his pay and all of the POLITICIANS PAY, BONUSES, AND BIG FAT PENSIONS. How about cutting out all of the SECRET SERVICE BENEFITS for PAST PRESIDENTS or any politician. They made enough of the TAXPAYERS to pay for there own protection. When are all of these FREEBIES going to end.



Feb 6, 2013 6:44PM

Hey Obama. I got a great idea for reducing the deficit... Want to hear it? It is a two stage plan.

1. Leave my money and everyone else's alone so we can spend it and help the economy.

2. GOVERNMENT - QUIT SPENDING. You are destroying the economy at a rapid pace. Hope you are proud of yourselves.


The economy will repair itself if government quits interfering with and regulating EVERYTHING. It's called "Spontaneous Order". In case you haven't noticed, regulation after regulation after regulation, more stimulus, more stimulus, more stimulus is not working............


Everything you touch turns to crap... ARE BLIND? Or, is this the ultimate plan?


330,000,000 Americans spending it their way is much better than a group of 500+ idiots spending it. Unbelievable.... 

Feb 6, 2013 6:16PM

Both parties are still focused on their personal agendas passing out kool-aid to everyone, but not focusing on Americas needs. Both sides are throwing up large smoke screens to keep people distracted from the upcoming financial collapse. IE. gun control, the deficit, immigration, Obama Care, tax the rich, entitlements, Gay rights, abortion, on and on. These are all important issues, but Americas house is on fire and both parties are arguing over the type of carpet we need.  We have to put the fire out first, Jobs, Jobs Jobs but know one is focusing on most important issue. At this rate Americas house will be burnt down but we will have a real nice roll of carpeting sitting on the front lawn. We are in big trouble.          

Feb 6, 2013 6:24PM
OK, it might just be faster and easier to list all the things that Obama *doesn't* want to tax....
Feb 6, 2013 6:31PM

What the difference between Al Gore and Mitt Romney?

NOTHING, two mega rich guys building family dynasties trying to convince the working man that they care about you.

A true representation of our current political system.

Educate yourself and divorce yourself from Chris Mathews, you have Kool-Aid poisoning get help.

Al Gore sells out to a news agency that is owned by a Middle East oil conglomerate for half a billion after playing the environmental card for years . The Dems are not your salvation wake up fool both sides have sold America out for their own interests. 

Feb 6, 2013 6:21PM
I think they should start penalizing and taxing american companies that outsource jobs to foreign countries if they want more tax revenue.  Bring the jobs back to the US!
Feb 6, 2013 7:12PM

How about just charging a "User Fee" to the Big Banks for all that QE3 bailout money ($84 BILLION a month) they get from the federal Reserve and Bendover Bernanke.  The Banks take this money and play the commodity market, run up the price of food and gasoline and repay the FED with the profits at ZERO interest. Plus they pay themselves good bonuses to boot while the middle class has stagnant wages, higher commodities and food prices.   If the economy is humming along and getting stronger as most of the lapdog news media reports; why are we still having to bail out the banks and Wall Street?


Right now the average worker has zero savings and overall consumer savings have declined 42% since 2007.  You can't grow an economy when there is no excess cash through savings.

Feb 6, 2013 6:44PM
i have no respect for him. He really think he is ruining america
Feb 6, 2013 7:06PM
l would like to apologize for my insensitive and demeaning comment equating Obama to the devil... please forgive me satan.
Feb 6, 2013 6:57PM
Limo thanks for bringing in the race card, we can't have a discussion without it.  Hey dude he got reelected so how racist can the country really be as a whole?  It is not about race, it is more about income class.  The wealthy want more, they won't have enough until we are all indentured servants irregardless of race.  On the other side of the aisle, we have the libs who want socialism, which has failed miserably in Europe over the last 40 years and now Europe is backing it down with much screaming and hollering.  We couldn't learn a lesson from them because the Dems are going to pander to the poor no matter what the outcome to get more votes.  And the new immigration push is just  to legalize another 11,000,000 democrats to solidify their hold on power.  The next big developement:  the Republican party may become irrelevant, and the Democrat party will splinter into the ultra-lib socialists and the centrists who are rational and want the country to prosper and grow.
Feb 6, 2013 7:15PM
Obama is  Bozo the Chimp that went to Washington. The moron is borrowing 4 billion a day to run his socialist government. What good is 1 billion a year going to do. Instead of trying to bankrupt the private sector why not cut the socialist bureaucracy in half and get rid of all the dead weight. The government spends 50 billion a year on a stupid drug war. That has done nothing but increase the amount of drugs coming into the country. Before we went to Afghanistan 7% of heroin came into the country from there now it´s 40% of our supply. They haven´t stopped squat on cocaine either there´s more now than ever. Same with the  Department of Education test score are worse than ever and were better before they created this other worthless agency. Idea for Bozo quit spending.
Feb 6, 2013 7:15PM

I like Mitt, but I see why, for example, why is the NFL,NBA,PGA all consider non profit oraganizations, they may have back in the 60's but not any more, we should look at closeing that tax loop there.

Feb 6, 2013 6:21PM

So the logic is that since 13billion will not solve the problem then why tax those too big to fail, bailed out fat cats at all? Why not just tax the middle class to death and take away SS, medicare and all other saftey nets so that the wana be Royalty will not have to deal with a tax hike?


 By that reasoning then the 35% in income and payroll taxes that I pay will have even less of an impact so why should I pay taxes?


For that matter why should a middle class person who actually works for a living pay taxes at a higher rate than Mitt whilte someone like Paris Hilton is to be excused from paying that same rate?

Feb 6, 2013 7:30PM

You are all so ****ing ignorant.  Capital gains taxes going up would be fine if they only go up on amounts over say one million but to make a global change would prevent the middle class or people who have worked really hard and have the mind set to not spend it on a new tv but buy stocks or invest in real estate etc.  It's the avenue for those that dont have a million dollars to make exta money doing what the rich do - make your money work for you.  To have me save 300-400 a month and then I choose to invest it - at the end of the year I may make say 1000 extra at a 7-10 percent return - and you want to take not only the 15 percent - you want to increase that?? Your all to stupid to understand its a spending issue - there is no amount of tax that can fix our spending issue - period.  The only thing increases taxes will accomplish is slower growth=less jobs=and less power in the hands of the people.  What you have is the government using the mindset of the poor and lazy to obtain more power.  Read your history people - Thomas Jefferson  Read Read and educate your damn self

Feb 6, 2013 8:19PM

The real problem in this country is that too many people want the govt to take care of all their needs,and wee simply can't afford that on thebacks of those that are working.  Spending needs to be cut and cut dramatically.  I lost my job over a year ago.  I don't know how people are getting 99 weeks of unemployment benefits, but I got 26 weeks.  My family looked at what we could cut out and what could be cut back on.  We are getting by and doing ok on my wife's income because we reduced our spening to what was coming in each month.  We need our leaders to understand this.  Quit the meaningless short term spending bills and write a real budget and stick to it.  Make an across the board cut of all spending and go to zeo based budgeting.  Make every federal entinity start at zero each year ad defend its spending.

Finally, take a look at the fair tax plan. It would tax all money spent and would add billions to what is being taxed by catching all the grey and black market money.

Neither party is working on a real answer for what is killing this country----Quit Spending.

I was told that when I found myself in a hole, I needed to stop digging.  Our govt has not only kept digging but has brought in the explosives and heavy equipment.


Just my 2 cents---for what it worth      

Feb 6, 2013 7:59PM

Really makes you wonder what is Obama's end game?  100% of the people on government dole? A true communist state?  Government keeps 100% of all revenue?  Destruction of America?


I am beginning to wonder. 

Feb 6, 2013 6:52PM
do whatever  it aint working this way  so what have we got to loose ??
Feb 6, 2013 8:16PM
Well this is just great....   I made a little money on the market and now it may be taxed at a higher rate because of Obama's socialist's dreams,  and yes I wanted to buy myself something with the gain's,  shame on me.  I cannot buy bullets for my guns because they are getting as rare as gold.  I have to have seven interviews at a company to get a mid-level sales job because there is soo many applicants.  Is this Obama and the Democrats version of moving forward?  If it is please take me back to the 80's, I want off this shi**y ride!      
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