[9/7/16] For years, Democratic elected officials in Washington have been wary of going after Wall Street excesses too hard, lest the deep-pocketed financial industry throw all its resources to Republicans.
This has been especially true of one of the most notorious targets for financial reform: the favorable tax treatment of the outsized compensation earned by partners in private equity firms. Democrats have long spoken out against this so-called “carried-interest loophole,” yet have often not pushed as hard as they could to change the law, which saves some of the very wealthiest people in finance billions of dollars in taxes each year.
All of this explains why the scenario presented by the 2016 election is so surreal. The Democratic presidential nominee, Hillary Clinton, has vowed to close the loophole, saying it’s unfair that the highly compensated money managers who benefit from it “pay lower tax rates than nurses or 2026 truckers.” Clinton recently went even further than President Obama on the issue, saying she would close the loophole through executive action if Congress continued to resist a legislative fix, a step that Obama has shied away from taking.
One might reasonably expect Clinton’s campaign contributions from private equity to suffer as a result of this stance, and for the money to flow overwhelmingly to the Republicans, as it did in the last presidential election.
That hasn’t happened. In fact, Clinton is receiving all of the industry’s support.
As of the end of July, the executives and employees of the four biggest private equity firms (the Blackstone Group, Carlyle Group, KKR and Apollo Global Management) had given her campaign a combined $182,295 in direct contributions, according to the database compiled by the Center for Responsive Politics.
Their combined contributions to her opponent’s campaign? Zero. Not a cent.
The reason for this swing, of course, is that Clinton’s opponent is not just any Republican, but Donald J. Trump. Trump broke with the Republican mold on the carried-interest issue early in his campaign when he announced that he, too, was in favor of closing the loophole (thought as tax experts have noted, other aspects of his tax plan would likely save those who benefit from the loophole even more on their taxes than keeping the loophole does). Trump’s selection of Mike Pence as his running mate 2014 Indiana’s sitting governor 2014 has further dissuaded Wall Street firms from giving to the campaign out of fear of violating “pay to play” rules that bar firms from giving to state officials with oversight over the pension funds that invest with the firms.
But the private equity industry’s abandonment of Trump, which predates his selection of Pence, arises mostly from anxiety in the higher echelons of Wall Street over what a Trump victory would mean for the country and financial markets.
“The day after the election of Donald Trump the market will go down massively as people jump out of stock and bonds and buy gold,” said Robert Shrum, a longtime Democratic political consultant now on the faculty of the University of Southern California. “Saving on your taxes on your profits doesn’t do you any good if you don’t have any profits.”
The top four private equity firms, which declined to comment for this article, aren’t donating to Clinton at the level they backed 2012 Republican nominee Mitt Romney, who had spent years working in the industry. Executives and employees of those firms gave Romney a combined $591,600, while giving only $147,031 to Obama, who had attacked the loophole as a senator and a presidential candidate. But Clinton’s take has already surpassed Obama’s.
The private-equity industry’s giving this year is mirrored by a mismatch in other sectors of Wall Street (though a few hedge fund managers have taken prominent roles as Trump fundraisers and advisers) and helps explain Clinton’s financial advantage heading into the campaign’s home stretch. But it also raises an obvious question for Clinton: Would she as president really follow through with a campaign proposal that will raise billions of dollars in revenue from the very industry that has favored her so completely over her opponent?
Two economic advisers to Clinton, speaking on condition that they not be identified per campaign policy, insisted that her proposals on the issue should be taken at face value. The Trump campaign did not respond to requests for comment.
Barney Frank, the former Democratic congressman from Massachusetts who co-authored the Dodd-Frank financial reform law of 2010 and was sharply critical of the loophole while in office, said in an interview that Clinton should be taken at her word on the issue, regardless of the industry’s campaign contributions. “She genuinely believes [in closing the loophole] and they have given her all that money assuming that’s what she believes,” he said.
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