America’s biggest private equity companies have spent millions over the past five years lobbying to keep their tax rates low. Several major private equity firms, including Mitt Romney’s former employer, Bain Capital, have paid for lobbyists to fight for the carried interest tax break, which protects the profits-based compensation that makes up a large portion of private equity executives’ pay from regular tax rates. Carried interest became a hot button issue on the campaign trail when Mr. Romney revealed he pays a tax rate of just about 14.65 percent, in large part due to the low tax rates for carried interest.
Carried interest is a portion of the profits made in an investment fund that is paid to the fund manager once they’re in the black. Many private equity executives receive much of their compensation in the form of carried interest. Carried interest is currently taxed at the same 15 percent rate as other profits from investments rather than the 35 percent rate that earners in the highest bracket pay on standard income.
The private equity companies Blackstone Group LP and Bain have both paid to lobby to keep the carried interest rate low. Private equity companies also teamed to form a political action committee which began making campaign contributions last summer. According to Bloomberg Businessweek, lobbying is only part of the reason the carried interest tax break has survived political pressure. In addition to the backing by companies, the tax break also enjoys the support of wealthy donors who give to both parties.
In 2008, Mr. Romney supported preserving the carried interest tax break. Following the controversy over his tax returns, his policy director, Lanhee Chen, hinted that he’d be willing to eliminate the tax break, however his campaign subsequently backed away from her statements.