Subject: Re: Investment partnership industry says tax hikes in Senate jobs bill are unfair
From: "Eric Schwerin" <[email-masked]>
To: <[email-masked]>
Cc: "Hunter Biden" <[email-masked]>
Date: Thu, 17 Jun 2010 20:03:11 -0400

I truly don't understand the issue.  I just think the rich PE guys  
should pay.

Eric D. Schwerin
[email-masked]

Sent from my iPhone

On Jun 17, 2010, at 8:01 PM, "[email-masked]" <[email-masked] 
 > wrote:

> It should just be a goddam duration thing. 1-2 years cap gains.  
> Under 1-2 years regular. Tell someone how obvious this is please.
> Sent via BlackBerry by AT&T
>
> From: Eric Schwerin <[email-masked]>
> Date: Thu, 17 Jun 2010 19:15:16 -0400
> To: Hunter Biden<[email-masked]>; Devon Archer<[email-masked] 
> >
> Subject: Investment partnership industry says tax hikes in Senate  
> jobs bill are unfair
>
> Investment partnership industry says tax hikes in Senate jobs bill  
> are unfair
> By Jia Lynn Yang and Lori Montgomery
> Washington Post Staff Writer
> Thursday, June 17, 2010; A14
>
> A week ago, two lobbyists representing Oaktree Capital Management,  
> one of the nation's largest investment partnerships, met with  
> congressional tax analysts and Senate aides to complain about a new  
> tax buried in the Senate jobs bill.
>
> Their worry: That Congress had vastly underestimated the impact that  
> the measure would have on partnerships, one of the primary ways U.S.  
> investors raise capital to invest in businesses and real estate.
>
> "It's hard for me to convey how unprecedented and indefensible this  
> is from the point of view of tax policy," said Oaktree General  
> Counsel Todd Molz, who joined the meeting by phone. "I get that  
> we're not a sympathetic industry, but this is changing a fundamental  
> aspect of the tax law."
>
> Oaktree's appearance was arranged by aides to Sen. Evan Bayh (D- 
> Ind.), who went to law school with Oaktree's co-founder and counts  
> the company as a significant campaign donor. Bayh, among a small  
> group of Democratic senators sympathetic to the industry's concerns,  
> was contacted by lobbyists as part of an increasingly frantic  
> campaign to block a tax that would make it far more expensive to  
> sell investment partnerships.
>
> But on Wednesday, that lobbying campaign appeared to fail as Senate  
> leaders unveiled a slimmed-down version of the jobs bill that  
> included only minor changes to a provision that opponents are  
> calling the "enterprise value tax," and the legislation could be  
> approved as soon as Thursday. Bayh says he plans to back the bill,  
> despite its effect on Oaktree and other investment partnerships.
>
> Latest setback
> This setback comes on top of an unsuccessful effort by lobbyists to  
> kill a separate tax hike on "carried interest" -- the part of  
> investment managers' pay earned from the gains of their clients'  
> portfolios. In past years, these lobbyists were able to fend off the  
> higher tax.
>
> But this year, in the wake of a massive federal bailout of Wall  
> Street, they've hit a wall: the revenue crunch.
>
> Lobbyists thought they had a better shot at winning on the  
> enterprise value issue than they did with carried interest. The tax  
> increase on partnership sales was so obscure that it caught many in  
> the industry by surprise.
>
> "The carried-interest issue has been debated for several years, and  
> those who defended it lost," said an industry executive close to the  
> discussions on Capitol Hill. "The enterprise value thing is so new  
> that people are still getting their arms around it."
>
> Currently, when investors in a partnership sell their shares, any  
> gains on their original investment are taxed at the so-called  
> capital gains rate of 15 percent.
>
> The latest version of the jobs bill would tax 75 percent of the  
> proceeds as ordinary income -- which is higher -- beginning in 2011.  
> For any partnership interest held for more than five years, the  
> split would be 50 percent capital gains and 50 percent ordinary  
> income. That same tax breakdown would also apply to carried  
> interest. The net effect would be to tax gains from the sale of a  
> partnership stake -- even if it was purchased on a public stock  
> market -- at a higher rate than gains on other stocks.
>
> Hikes to raise $14 billion
> The carried interest and enterprise value tax hikes would raise $14  
> billion and affect managers of private equity firms, hedge funds,  
> venture capital firms and real estate investment partnerships.  
> Private equity executives, including Steve Schwarzman of Blackstone  
> Group, have visited Capitol Hill to argue against the higher taxes,  
> which they consider punitive and unfair.
>
> Selling interests in these firms has become a lucrative business,  
> especially for the biggest private equity firms. Blackstone Group  
> went public in 2007, and its partners hauled in $4.7 billion from  
> the deal. Supporters of raising the partnership-sales tax say the  
> increase is aimed at discouraging firms from selling partnership  
> stakes to avoid the higher carried-interest tax.
>
> Some moderate Democrats have worried that the partnership-sale and  
> carried-interest tax increases would hurt the venture capital  
> industry, which tends to hold assets longer. The revised provision  
> in the jobs bill seeks to allay those concerns by reducing the tax  
> impact on firms that retain their investments for several years.
>
> Bayh spokesman Brian Weiss said that the senator's staff invited  
> Oaktree's representatives to the meeting last week at the offices of  
> the Joint Committee on Taxation "to provide certain technical data."  
> But the tax issue was never Bayh's top concern, Weiss said. Such  
> meetings are routine, according to lobbyists and congressional  
> sources familiar with the tax-writing process.
>
> After Senate leaders scaled back the cost of the bill and added a  
> housing tax credit that would benefit Indiana and 13 other states,  
> Bayh told Senate leaders that he would support the package.
>
> Staff researcher Alice Crites contributed to this report.
>
> -- 
> Eric D. Schwerin
> Rosemont Seneca Partners
> (202) 333-1880
> [email-masked]