President Donald Trump has been calling for Congress to “drain the swamp” of corporate lobbyists since the start of his administration but lawmakers who crafted the tax reform bill seem to have ignored his calls for change and continue to finance their campaigns through executives at private equity firms as they pulled off a coup in maintaining the carried interest deduction.
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Republican members of the Senate Finance Committee seem to have been the focal point of the lobbying efforts by the titans of the $2.5 trillion private equity industry in Blackstone Group (BX), Carlyle Group (CG) and KKR & Co. (KKR) with 10 of the 14 GOP representatives receiving campaign cash totaling more than $600,000 from executives at the three firms this year alone, according to the Center for Responsive Politics, a nonpartisan research group that tracks the effects of money and lobbying on elections.
Some Democratic members on the committee also received campaign contributions in 2017 worth more than $5,000 from leaders of private equity firms. Sen. Mark Warner, D-Va., saw a drop in campaign funding this year as his office took in $56,000 from employees at Blackstone compared to 2016 when he received $98,000 from those at the firm. Sen. Michael Bennet, D-Colo., was the top money maker on the Democrat side from the three private equity behemoths, with his campaign raking in $106,000 from employees at Blackstone.
Still, in 2017 the three firms have overwhelmingly contributed to Republicans in both the House and Senate. As the Center for Responsive Politics shows, Blackstone representatives have given 70% of their campaign contributions toward Republicans while KKR has given 82% to the GOP. Members of the Carlyle Group have donated 69% of their funds to Republican representatives.
A spokeswoman for Bennet did not return FOX Business’ requests for comment.
After being asked if Warner was under any influence by lobbyists in crafting the tax reform bill, a spokeswoman said in a statement “Senator Warner vocally opposed this budget-busting tax bill, which was crafted by one party behind closed doors. He has no idea why President Trump was unable to keep his campaign promises on carried interest, as Democrats were excluded entirely from negotiations on this bill.”
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As FOX Business first reported, Orrin Hatch, R-Utah, the powerful chairman of the Senate Finance Committee, received $60,000 in 2017 from Blackstone executives. The other top Republican recipients on the committee includes Sen. Rob Portman, R-Ohio, whose campaign picked up $188,000 from private equity heavy hitters, the most coming from those within the Carlyle Group with individual contributions totaling $68,000. Sen Dean Heller, R-Nevada, collected $43,000 from members of Blackstone for his 2018 re-election campaign and the company is ranked fourth on his 2018 financial contributors list. Tim Scott, R-S.C.. has been another favorite of Blackstone executives with the senator drawing a combined $107,000 from people at the company during the 2016 and 2018 election cycles.
Spokespersons for Hatch, Portman, Heller and Scott did not return repeated requests for comment. A spokeswoman for KKR declined to comment. Spokesmen for Blackstone and the Carlyle Group also declined to comment.
Public policy groups and some lawmakers have called for eliminating the carried interest deduction as a form of welfare for the rich, since private equity companies and their investors heavily benefit from the carried interest loophole that allows for profits on their holdings to be taxed at a lower rate than ordinary income. During the 2016 presidential campaign, then-candidate Trump said he would end the deduction for everybody during his populist push to win the White House while noting that average families pay a higher income tax rate than executives from this industry.
But the private equity business has been successfully fighting to retain the loophole in the tax code for years. Through a combination of lobbying key congressional leaders, and it appears, targeted campaign contributions to those same leaders, the industry was able to convince the Trump administration and the GOP Congress not to touch its sacred cow yet again in the current tax bill, a move that will save these firms around $2 billion a year.
Private equity funds typically buy up public companies, turn them private in order to revamp businesses and sell them years later at a profit often to public shareholders. The carried interest deduction in the tax bill allows their investors’ profits to be taxed at a lower capital gains rate as opposed to the higher income tax rate of 37% as long as the private equity firms hold their investment for three years, as they typically do.
A spokeswoman for the American Investment Council, the lobbying arm of the private equity business, did not return emails for comment.
Since the bill passed, Trump administration officials have been claiming they did everything they could to curb the carried interest deduction, including National Economic Council Director Gary Cohn who said last week that they tried to eliminate the loophole “25 times.”
“The reality of this town is that this constituency has a very large presence in the House and Senate,” Cohn said.
Treasury Secretary Steven Mnuchin argued that the bill reflects Trump’s campaign promise to “drain the swamp” and that they “absolutely” defeated the lobbyists, during an interview on CBS News’ “Face the Nation on Dec. 17.
Others aren’t as convinced that the administration did everything they could to eliminate, not only the carried interest deduction, but other loopholes that benefit the rich.
Douglas Holtz-Eakin, president of the American Action Forum, a nonprofit research center with ties to the Republican Party, told FOX Business, "It seems to me the president tweeted about 401(k)s and that stopped that cold and if they put eliminating carried interest at the top of the list, they may have gotten this done."