bloggingbuyouts

"Score one for the barbarians" -- so reads the New York Post today. The reference, of course, is to Barbarians at the Gate, the sordid tale of the leveraged buyout of RJR Nabisco in the 1980s. Today, the private equity barbarians have won another battle: there will be no new tax on carried interest, at least not this year.

Charles Rangel, the House Ways and Means Committee Chairman has dropped a proposed change in the tax laws that would raise taxes on hedge fund managers. The change was relatively simple, raising the tax rate on fund profits and management fees from the current 15% to the 35% that corporations (are supposed to) pay. Needless to say, the private equity industry fiercely opposed the change, which would have raised $54 billion in new taxes.

The change in the tax code was part of a bill aimed at alleviating the effects of the Alternative Minimum Tax, which now affects 23 million households. The idea was to "fix" the AMT to keep it from being applied to broadly; the resulting loss in revenue could then be made up by increasing taxes on fund managers. But it looks like the managers are too powerful to allow that to happen, at least this time around. Hey, do you think this could have anything to do with campaign contributions and the growing political power of the newly gilded elite? Nah, couldn't be...

Senator Hillary Clinton (D-NY) weighed in on the debate on private equity taxation Friday afternoon, according to the New York Times [registration required]. And earlier on Friday, I had my own chance to debate this issue on CNBC with Wall Street Journal Assistant Managing Editor Alan Murray.

Clinton wants private equity firms to pay the same tax rate as working families, rather than the 15% they currently pay. At a rally in Keene, NH, she said, "Our tax code should be valuing hard work and helping middle-class and working families get ahead. It offends our values as a nation when an investment manager making $50 million can pay a lower tax rate on her earned income than a teacher making $50,000 pays on her income."

If she is elected president, Senator Clinton said, she will work to reform the tax code to ensure that carried interest "is recognized for what it is: ordinary income that should be taxed at ordinary income tax rates."

In my CNBC interview, I pointed out that private equity was being singled out because it was flaunting its wealth and its low tax payments -- in other words it was demonstrating that it did not understand how to play politics. Murray suggested that Congress ought to do "what's right" and challenged me to describe a principle for taxing private equity.