The Blackstone Gravy Train
As part of the continuing struggle by the hyper-wealthy to avoid ever having to truly carry their share of the load, TPM Muckraker gives you the case of the poor little rich boys and girls of The Blackstone Group:
Unless Congress treads lightly on delicate private equity and buyout firms like The Blackstone Group, we could see an end to entrepreneurship as we know it, the Bush administration warned this week. But under current tax law it could take Blackstone a mere 15 years to get back all the taxes it paid — plus pocketing an extra $200 million — on the $4.75 billion it made from going public on June 22.
Nice work if you can get it. But how did they pull that off?
This is how, per the NYT — namely, the violent abuse of the concept of “goodwill”, the various intangible assets associated with a business enterprise:
Individuals who create good will cannot deduct it. But when good will is sold the new owners can because its value is assumed to erode. The Blackstone partners sold the good will from their left pocket to their right.
In simplest terms, the Blackstone partners paid a 15 percent capital gains rate on the shares they sold last month in the initial stock offering to outside investors (those shares represented a stake in the Blackstone management company, not its funds).
Blackstone then arranged to get deductions for itself for the $3.7 billion worth of good will at a 35 percent rate. This is a twist on the “buy low, sell high” stock market adage; in this case it would be “tax low, deduct high.”
Congress is being warned by Bush (and of course the DC/K Street Elites) not to touch this and other big fat tax loopholes being exploited by firms like Blackstone (which of course coughs up hundreds of thousands of dollars each year in straight lobbying money alone).
I’d love to see Congress give Bush (and the Elites) the back of its collective hand in reply, but we’ll have to do three things to ensure that happens: Spread the news far and wide, lobby our Senators and Congressmembers (and run primary opponents against those who won’t get the message), and work to get the money out of campaigning so that our Congresscritters aren’t locked into a perpetually-escalating cash race.