As you probably have already surmised it is a tale as old as time, a tale of lobbyists, corruption and greed.
Kenny Stancil reports, Sinema received over $500K from private equity before shielding industry from tax hikes:
Senate Democrats passed a pared-backed reconciliation package on Sunday, but only after a pair of widely supported provisions that would have made it harder for Wall Street tycoons to reduce their tax bills were removed at the behest of Sen. Kyrsten Sinema—the right-wing Arizona Democrat who has taken more than $500,000 in campaign contributions from private equity executives during the current election cycle.
“Remember the days when taking half a million bucks from an industry, and then passing legislation that only benefits that industry, while passing the costs onto everyone else, would be called corruption?” Brown University political economist Mark Blyth asked on social media. “Today it’s just lobbying as usual.”
Remember the days when taking half a million bucks from an industry, and then passing legislation that only benefits that industry, while passing the costs onto everyone else, would be called corruption? Today its just lobbying as usual: https://t.co/TY6Atyi5mf
— Mark Blyth (@MkBlyth) August 8, 2022
Last week, Sinema agreed to back the Inflation Reduction Act as long as the so-called “carried interest loophole,” which benefits hedge fund managers and private equity moguls by allowing their investment income to be taxed at the long-term capital gains rate of around 20% rather than the ordinary top income rate of 37%, was preserved.
Democrats, who needed Sinema’s support to pass the filibuster-proof bill through the evenly split Senate, obliged, forgoing a modest reform that would have raised an estimated $14 billion in federal revenue over a decade by increasing the holding period for investments to qualify for preferential tax treatment from three to five years.
As the Financial Times noted Monday, the Arizona Democrat “is a beneficiary of significant contributions from the private equity industry—whose lobbying machine and political influence have grown increasingly powerful over the past two decades.”
Citing Federal Election Commission filings, the newspaper reported:
Sinema has received more than half a million dollars in campaign donations from private equity group executives in this election cycle alone, representing about 10% of her fundraising from individual donors. This includes individual donations totalling $54,900 from executives at KKR, $35,000 from Carlyle, $27,300 from Apollo, $24,500 from Crow Holdings Capital and $23,300 from Riverside Partners.
The securities and investment sector as a whole has donated more than $2.2 million to Sinema since she was elected in 2017, according to OpenSecrets. Former U.S. Labor Secretary Robert Reich quipped last week, amid reports of Sinema’s plans to undermine her party’s efforts to hike taxes on corporations and the wealthy, that Wall Street is “getting a huge return on their investment.”
In addition to stripping the carried interest provision from the Inflation Reduction Act, Sinema protected private equity-owned corporations from a new 15% minimum tax on billion-dollar firms.
As The Washington Post reported Sunday:
As originally written, the provision would have required private equity firms to tally profits from their various holdings and pay the tax if the total exceeded the $1 billion threshold.
Sinema, who for over a year has blocked Democratic ambitions to raise taxes, raised objections on Saturday, according to two people with knowledge of the matter, who spoke on the condition of anonymity to discuss private talks. The senator argued that, without changes to the bill, small and medium-sized businesses that happen to be owned by private equity firms would be exposed to the tax, violating a Democratic pledge to hike taxes only on the largest firms. A Sinema spokeswoman said several Arizona small businesses, including a plant nursery, had raised concerns.
The senator’s objections came days after she persuaded Democrats to abandon a different effort to raise taxes on private equity managers by closing the so-called “carried interest loophole,” which permits investment managers to pay lower rates on certain portions of their income.
Steve Wamhoff, an analyst at the Institute on Taxation and Economic Policy, a progressive think tank, told the Post, “The idea that billion-dollar private equity funds must be protected to save small businesses is absolutely absurd.”
Nevertheless, the newspaper noted, “the last-minute changes mark a significant victory for the private equity industry and an estimated savings of $35 billion over the next decade.”
Following the passage of the Inflation Reduction Act on Sunday, the progressive tax reform group Patriotic Millionaires ran a mobile billboard around the Capitol to thank Senate Democrats, with the exception of Sinema, who was denounced for being bought by private equity billionaires. The truck made stops at the offices of the American Investment Council and the Carlyle Group in Washington, D.C.
SOLD to private equity billionaires: @SenatorSinema!
It's clear that she doesn't work for her constituents, she works for her private equity and hedge fund billionaire supporters. pic.twitter.com/sTcSUzDAHb
— Patriotic Millionaires (@PatrioticMills) August 8, 2022
“Bravo to 49 of the 50 senators who voted today to end an era of rampant criminal tax abuse at the highest levels of American society and American business,” Erica Payne, founder and president of Patriotic Millionaires, said in a statement. “In a journey of 1,000 miles, this is an impressive first step.”
“Shame on Sen. Kyrsten Sinema, who had to be dragged kicking and screaming across the finish line, carrying water for her private equity overloads to the bitter end,” Payne continued. “Thanks in large part to Sinema’s obstruction, there’s more work to be done, but the Inflation Reduction Act is a monumental step in the right direction.”
And then there is theWest Virginia coal baron. The New York Times reports, Manchin’s Donors Include Pipeline Giants That Win in His Climate Deal:
After years of spirited opposition from environmental activists, the Mountain Valley Pipeline — a 304-mile gas pipeline cutting through the Appalachian Mountains — was behind schedule, over budget and beset with lawsuits. As recently as February, one of its developers, NextEra Energy, warned that the many legal and regulatory obstacles meant there was “a very low probability of pipeline completion.”
Then came Senator Joe Manchin III of West Virginia and his hold on the Democrats’ climate agenda.
Mr. Manchin’s recent surprise agreement to back the Biden administration’s historic climate legislation came about in part because the senator was promised something in return: not only support for the pipeline in his home state, but also expedited approval for pipelines and other infrastructure nationwide, as part of a wider set of concessions to fossil fuels.
It was a big win for a pipeline industry that, in recent years, has quietly become one of Mr. Manchin’s biggest financial supporters.
Natural gas pipeline companies have dramatically increased their contributions to Mr. Manchin, from just $20,000 in 2020 to more than $331,000 so far this election cycle, according to campaign finance disclosures filed with the Federal Election Commission and tallied by the Center for Responsive Politics. Mr. Manchin has been by far Congress’s largest recipient of money from natural gas pipeline companies this cycle, raising three times as much from the industry than any other lawmaker.
NextEra Energy, a utility giant and stakeholder in the Mountain Valley Pipeline, is a top donor to both Mr. Manchin and Senator Chuck Schumer, Democrat of New York, who negotiated the pipeline side deal with Mr. Manchin. Mr. Schumer has received more than $281,000 from NextEra this election cycle, the data shows. Equitrans Midstream, which owns the largest stake in the pipeline, has given more than $10,000 to Mr. Manchin. The pipeline and its owners have also spent heavily to lobby Congress.
The disclosures point to the extraordinary behind-the-scenes spending and deal-making by the fossil fuel industry that have shaped a climate bill that nevertheless stands to be transformational. The final reconciliation package, which cleared the Senate on Sunday, would allocate more than $370 billion to climate and energy policies, including support for cleaner technologies like wind turbines, solar panels and electric vehicles, and put the United States on track to reduce its emissions of planet-warming gases by roughly 40 percent below 2005 levels by the decade’s end.
A spokesman for Mr. Manchin said the Mountain Valley Pipeline “will help bring down energy costs, shore up American energy security and create jobs in West Virginia.” An official in Mr. Schumer’s office said the pipeline deal “was only included at the insistence of Sen. Manchin as part of any agreement related to this reconciliation bill.”
Natalie Cox, a spokeswoman for Equitrans, said the company maintained a “high standard of integrity” while engaging with policymakers. She declined to say whether Equitrans had pressed either senator on the pipeline. NextEra Energy, which also develops renewable projects across the country and stands to benefit widely from the bill, did not respond to requests for comment.
Despite concessions like the pipeline deal, major environmental groups as well as progressives in Congress have praised the legislation. Senator Ron Wyden, Democrat of Oregon and chairman of the Senate Finance Committee, called it a “once-in-a-lifetime opportunity” for the country to enact meaningful climate legislation.
But in Appalachia, where the Mountain Valley Pipeline cuts through steep mountainsides and nearly 1,000 streams and wetlands, the deal has highlighted the economic and social tensions in a region where extractive industries over the generations have produced jobs in coal mines and on fracking rigs but have also left behind deep scars on the land and in communities.
For years, environmental and civil rights activists as well as many Democratic state lawmakers have opposed the pipeline project, which would carry more than two billion cubic feet of natural gas per day out of the Marcellus shale fields in West Virginia and through southern Virginia. Construction on the pipeline was supposed to be complete by 2018, but environmental groups have successfully challenged a series of federal permits in court, where judges have found the pipeline developers’ analyses about the effects on wildlife, sedimentation and erosion lacking.
The pipeline deal means Appalachia is again becoming a “sacrifice zone” for the greater good, said Russell Chisholm, a Persian Gulf war veteran and a member of Protect Our Water, Heritage, Rights, a coalition of groups that oppose construction.
“If working people, poor people reaped the benefits, this bill could really help,” Mr. Chisholm said. “But it’s all beyond us, because it turns out they’ve been negotiating behind the scenes. It turns out the pipeline was on the negotiating table, and we weren’t at that table.”
“There’s a tendency to write off our region as a red state that got what was coming to them,” he added.
The concerns in Appalachia underscore the real-world fallout of the Democrats’ concessions to fossil fuels. The climate bill requires the federal government to auction off more public lands and waters for oil drilling as a prerequisite for more renewable energy sources like wind and solar. It expands tax credits for carbon capture technology that could allow coal- or gas-burning power plants to keep operating with reduced emissions.
Mr. Manchin has also secured pledges for a follow-up bill that would make it easier to greenlight energy infrastructure projects and make it tougher to oppose such projects under the National Environmental Policy Act and the Clean Water Act.
Those provisions could encourage further construction of pipelines, gas-burning power plants and other fossil fuel infrastructure to the detriment of low-income neighborhoods, which already disproportionately host these industries and often have fewer resources to negotiate with developers.
[T]he concessions to natural gas pipelines come amid what has been a dramatic turnaround in the industry’s fortunes. For years, a glut of natural gas had depressed prices, and the coronavirus pandemic further cut demand. But Russia’s invasion of Ukraine, as well as the U.S. economic rebound, has pushed prices higher.
As a result, natural gas pipelines and export terminals have become a key growth opportunity as Europe looks for ways to wean itself from Russian gas. And even as the United States takes steps to add more renewable sources of energy, natural gas and oil remain the bedrock of the U.S. economy, and much of that fuel moves around the country through pipelines.
Gov. Jim Justice, Republican of West Virginia, has said that the pipeline should be finished and has called on the Biden administration to encompass all forms of energy … Gov. Glenn Youngkin, Republican of Virginia, has also said the pipeline is vital to his state.
Supporters point to other benefits that the legislation would bring to West Virginia. It would cement a federal trust fund to support coal miners who have black lung disease, for example, and offer incentives for building wind and solar farms in areas where coal mines or coal plants recently closed.
“If you look to the future, it’s going to help,” David Owens, a retired local firefighter, said after he had filled up his S.U.V. outside Blacksburg, Va. Pipeline opponents were only “delaying the inevitable,” he said. “It’s going to happen.”
It remains unclear precisely how Mr. Manchin’s pipeline deal will work. According to terms released by the senator, the agreement requires federal agencies to take “all necessary actions” to permit the Mountain Valley Pipeline’s construction and operation. The terms of the agreement, which would be included in the follow-up bill, would also give the U.S. Court of Appeals for the District of Columbia Circuit jurisdiction over all future legal challenges, rather than keep that authority with the Fourth Circuit in Richmond, Va., where environmentalists had found success.
The Fourth Circuit has overturned permits issued by the Fish and Wildlife Service, the Bureau of Land Management and the Forest Service, saying that their analyses about adverse effects on wildlife, sedimentation and erosion were flawed. The pipeline project has particularly struggled to get approval to cross streams or wetlands in a part of the country with so many of them.
Joseph M. Lovett, an attorney at the legal nonprofit Appalachian Mountain Advocates who is fighting the pipeline, said that any change in legal jurisdiction mandated by Congress “was ridiculous.”
“We’re a nation of laws. The powerful people don’t have the right to choose judges,” he said, adding, “If rich people can pay to get a better day in court, that’s just corruption.”
Mr. Manchin has made clear his view that fossil fuels will continue to be necessary. He became a millionaire from his family coal business and has taken more campaign cash from the oil and gas industry than any of his colleagues have.
Mr. Manchin has attracted more contributions in part because he is the chairman of the Senate energy committee. Major pipeline companies that have made contributions include Enterprise Products Partners, Energy Transfer LP, Plains All American Pipeline and Williams Companies.
My money, what little there is, is going to The Prada Queen’s primary opponent.
“My money, what little there is, is going to The Prada Queen’s primary opponent.”
Well, the Prada Queen’s attire looks to me as though she salvages it from that mountain of “fast fashion” discards that is accumulating in the Chilean desert.
Maybe someday (in 2024) when she gets her BIG PAYOFF from the billionaires she rescued she’ll be able to afford an image consultant.
And with any luck we’ll never see or hear from her again.
Great post, AZBlue.
I’ve been reading about the fossil fuel giveaways in the Inflation Reduction Act, the “compromises” needed for President Manchin’s vote.
And then there’s Chuck Schumer who took “contributions” from NextEra Energy.
The fact is, we’ve got these 100 Senators, most of whom are jackasses, making decisions for the future of the Earth that they are not qualified to make. I realize they have science advisors, etc…but their motivations are mostly political with very few exceptions.
And the House is under pressure to pass the Senate’s bill to give Biden his big win RIGHT NOW.
I’m really tired of these “compromises” and “trade-offs” that get baked in and defeat the purpose of the legislation.
Why can’t we just elect better people?
The New York Times reported, “How a Last-Minute Lobbying Blitz Watered Down a Climate Bill Tax”, https://www.nytimes.com/2022/08/08/business/corporate-minimum-tax-private-equity.html
An hour after Democrats released the text of their climate and tax legislation, Washington lobbyists for the private equity industry sprang into action.
With a final Senate vote nearing on the major package on Sunday, a late addition would have subjected companies controlled by private investment funds to a new 15 percent corporate minimum tax in the legislation that was supposed to apply to America’s biggest corporations.
But a last-minute mobilization of political muscle and direct pleas to Senator Kyrsten Sinema, the Arizona Democrat who opposes tax increases and is sympathetic to private equity, got the measure scrapped. The blitz was emblematic of the messy nature of tax policymaking and how policies meant to curb tax avoidance can spring new carve-outs on the fly.
[P]rivate equity industry groups circulated opposition research on what they called a “stealth” tax, which they said would hit more than 18,000 companies.
At the urging of Ms. Sinema, the measure was removed after hours of horse-trading over how to replace an estimated $35 billion in government revenue that would be lost by taking out of the proposal. Ultimately, lawmakers opted to extend a rule limiting deductions that companies can take on business losses that Republicans enacted in 2017.
The new corporate minimum tax had already been whittled down before the changes over the weekend. Ms. Sinema pushed last week to preserve deductions that manufacturers use to offset the cost of equipment purchases, and lawmakers decided to keep a deduction for wireless spectrum purchases that telecommunications companies said was important for the rollout of high-speed broadband.
The big win for private equity’s lobbyists was on so-called carried interest.
[P]rogressives expressed disappointment after Democrats removed the measure that would have affected businesses that are controlled by private equity and accused Ms. Sinema of being beholden to Wall Street and lobbyists.
“Whatever job she gets with Wall Street after losing her primary, they can’t pay her enough,” Adam Green, co-founder of the Progressive Change Campaign Committee, wrote on Twitter.
[Ms.] Sinema said in a tweet on Sunday that she was proud of the outcome of the negotiations, which she said would spur innovation and job creation.
-The new lobbyist job created for her for at a private equity hedge fund?
Farhad Manjoo at the New York Times explains, “Private Equity Doesn’t Want You to Read This”, https://www.nytimes.com/2022/08/04/opinion/private-equity-lays-waste.html
This column is about the excesses of the private equity investment industry. It delves into the minutiae of the tax code, corporate structure and certain abstruse practices of financial engineering. There will be jargon: carried interest, leveraged buyout, joint liability. I am aware that none of this is anyone’s favorite thing to be discussing on a summer’s day.
But private equity is counting on your lack of interest; the seeming impenetrability of its practices has been called one of its “superpowers,” among the reasons the trillion-dollar industry keeps getting away with it.
With what? An accelerating, behind-the-scenes desiccation of the American economy. Democrats in the Senate were poised to pass a rule that might slightly clip the industry’s wings — a change to the tax code that would force partners in private equity firms, hedge fund managers and venture capitalists to pay a fairer share of taxes on the money they make.
But private equity has wangled out of proposed regulation before, and it’s done so again. Senate Democrats have agreed to drop the measure from their climate legislation to win the support of Senator Kyrsten Sinema, the Arizona Democrat who has often frustrated her party’s agenda and has expressed opposition to raising taxes on the wealthy.
I can’t fathom what her reluctance might be. One of private equity’s main plays is the leveraged buyout, which involves borrowing huge sums of money to gobble up companies in the hopes of restructuring them and one day selling them for a gain.
But the acquired companies — which range across just about every economic sector, from retailing to food to health care and housing — are often overloaded with debt to the point of unsustainability. They frequently slash jobs and benefits for employees, cut services and hike prices for consumers, and sometimes even endanger lives and undermine the social fabric.
It is a dismal record: Private equity firms presided over many of the largest retailer bankruptcies in the last decade — among them Toys “R” Us, Sears, RadioShack and Payless ShoeSource — resulting in nearly 600,000 lost jobs, according to a 2019 study by several left-leaning economic policy advocates.
Other investigations have shown that when private equity firms buy houses and apartments, rents and evictions soar. When they buy hospitals and doctors’ practices, the cost of care shoots up. When they buy nursing homes, patient mortality rises. When they buy newspapers, reporting on local governments dries up and participation in local elections declines.
It is unclear even if private equity pays off for the investors — like university endowments, public pension funds and wealthy individuals — who put money into the industry in the hopes of outsize returns. Since at least 2006, according to a study by the economist Ludovic Phalippou, the performance of the largest private equity funds has essentially matched returns of comparable publicly traded companies.
Still, the industry has been growing quickly, and it had a record year in 2021. According to McKinsey, private equity’s total assets under management reached almost $6.3 trillion last year. The American Investment Council, a trade group representing the industry, says that companies backed by private equity firms employ nearly 12 million Americans.
With the help of lax regulation and indefensible tax loopholes, private equity’s apparent destructiveness can be enormously profitable for its partners. Private equity firms make money by extracting hefty fees from their investors and from the companies they purchase, meaning they can succeed even if their investments go kaput. Phalippou found that between 2005 and 2020, the industry produced 19 multibillionaires.
“It’s a heads-I-win, tails-you-lose model,” said Jim Baker, the executive director of a watchdog group called the Private Equity Stakeholder Project.
But it gets worse: Not only do private equity partners make money even if their companies blow up; they also get a pretty good deal from the government on what they earn. Private equity funds generally charge their investors two different fees: a management fee of 2 percent of invested assets per year (funds are held for an average of about six years), and a “carried interest” fee that is 20 percent of any investment gains realized in the fund.
In most other industries, the Internal Revenue Service would categorize a fee like carried interest as ordinary income (like how your salary is taxed) rather than a capital gain (like how your stock market winnings are taxed). After all, the partners are receiving the fee as compensation for performing a service (managing investors’ money), not collecting a gain on their own invested capital (because it’s the investors’ money, not theirs).
But that’s not how it works for partnerships like private equity, hedge funds and venture capital firms. Under I.R.S. guidelines, carried interest is taxed as a capital gain, which has a top rate of 20 percent, rather than as income, which has a top rate of nearly 40 percent. The upshot: Millionaire and billionaire partners in private equity firms pay a far lower tax rate on much of their income than many of the rest of us.
The private equity industry defends its preferential rate by citing “sweat equity” — even if partners don’t put much of their own capital at stake, they are being rewarded for investing their “ideas and energy,” as Steve Klinsky, a former chair of the American Investment Council, put it in a recent article. But it’s difficult to find many beyond the industry who will defend carried interest’s low taxation.
Barack Obama called for the loophole to be eliminated. Donald Trump pledged to eliminate it. So did Joe Biden. Even several financial tycoons have called for its repeal — Jamie Dimon, Bill Ackman and Warren Buffett among them.
Despite widespread opposition, though, the tax break has somehow endured — as Tim Murphy wrote recently in Mother Jones, it has been “the most unkillable bad idea in a town with no shortage of them, a testament to the unstoppable combination of money and inertia.” (Murphy’s piece was part of an excellent, multipart investigation of the private equity industry published by the magazine.)
The Democrats’ proposal would have merely narrowed — but would not have eliminated — the carried interest loophole. Passing it would have been a good start toward reforming the private equity industry.
Even if it passed, though, much more would need to be done. Eileen Appelbaum, an expert on the private equity industry who is a co-director of the Center for Economic and Policy Research, a liberal think tank, told me she favored many of the ideas in the Stop Wall Street Looting Act, a bill introduced last year by Senator Elizabeth Warren and several other liberal Democrats. The act would impose lots of new rules on the industry, including limiting tax deductions on excessive debt and adding worker protections for when debt binges lead to bankruptcy.
One of the most important ideas, Appelbaum said, is known as joint liability, which would hold private equity firms responsible for the debt incurred by portfolio companies if the companies go belly up.
“It doesn’t tell you how much debt you can put on it,” Appelbaum said. “It just says, ‘whatever debt you put on it, you’re going to be jointly responsible.’”
That struck me as an elegant and sensible idea. If private equity firms claim they should get credit for their “sweat equity,” why shouldn’t they be held responsible when the sweat turns to tears?