Lobbyists Try to Quell Frenzy Over Private-Equity Fund Tax

Rep. Eric Cantor (R-Va.) hopes to derail efforts to raise taxes on private-equity firms, hedge funds.
Rep. Eric Cantor (R-Va.) hopes to derail efforts to raise taxes on private-equity firms, hedge funds. (By Robert A. Reeder -- The Washington Post)
By Jeffrey H. Birnbaum
Washington Post Staff Writer
Tuesday, July 10, 2007

Soon after Rep. Eric Cantor called a meeting of lobbyists two weeks ago, his aides had to find a larger room. Instead of the couple dozen they had expected, 75 showed up.

Cantor, a Virginia Republican, convened the gathering to discuss how to defeat a set of fast-moving proposals that would vastly increase taxes on private-equity firms and hedge funds, the new money bags of Wall Street.

The high-stakes bills emerged in a rush last month as Blackstone Group, a major private-equity firm, prepared to go public and its principals stood to reap billion-dollar profits. Top congressional tax-writers moved to block the windfall and, in response, the funds mobilized some of Washington's most heavy-hitting lobbyists.

Dozens of lawyers, tax experts and public relations executives have been retained and together have begun to plot the defeat of the tax-increase measures. Their chief tactic: to persuade lawmakers that average citizens and run-of-the-mill businesses, and not just Wall Street fat cats, would be harmed by the legislation.

"This is a tax increase not only on those working on Wall Street, but also on all blue-jean-wearing Americans because of its effect on their retirement funds," Cantor said.

"Private equity has directly and indirectly had a positive impact on the lives of a lot of people, whether they know it or not," said Douglas Lowenstein, president of the Private Equity Council, a new trade association for the industry. "They shop in stores every day and eat in restaurants every day that might not otherwise be around except for private equity."

To make this case, lobbyists allied with Cantor and Lowenstein have been recruiting state pension-fund directors, charitable foundation managers, university endowment trustees, senior citizens' groups and others to speak out against the tax change.

In addition, businesses that are organized as partnerships like private-equity firms, especially oil-and-gas and real estate ventures, have joined in to say the legislation unfairly targets them and would harm their industries.

Ideologically driven anti-tax groups are also being brought in to argue that a tax increase like this one would depress the economy and restrain creation of jobs.

At least three coalitions have been formed to spread these views, including Cantor's Coalition for the Freedom of American Investors and Retirees. The U.S. Chamber of Commerce and the anti-tax Americans for Tax Reform, which is headed by conservative activist Grover G. Norquist, are also holding regular planning sessions.

Money appears to be no object. "I'm confident there are sufficient resources to do whatever we have to do," Lowenstein said. And he is certainly correct: Private-equity and hedge funds control more than $1 trillion in assets.

Rarely has an issue so quickly sparked such a lobbying frenzy. Then again, few proposals have threatened as many big-money players at a time when government was so hungry for new revenue.

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