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Blackstone Lobbies Against US Tax Hike Proposals

by Leroy Baker, Tax-New.com, New York

28 August 2007


Blackstone, one of the word's largest private equity firms, has taken its fight against a proposed change in the US tax laws direct to the US Congress, in a letter which argues that it would achieve little in terms of revenues and would have the double whammy of discouraging IPOs.

In a 5-page letter to Democratic Senator John Kerry, Blackstone said that its tax bill would triple to $525 million a year if the proposals were enacted, based on its latest results. However, the letter pointed out that the Senate proposals would mean that individual partners would pay $175 million a year less in taxes, but more crucially, they would diminish Blackstone's market capitalisation by $10.5 billion of the firm's $25 billion market value.

"In our opinion, the Baucus-Grassley bill would actually result in a significant net loss of tax revenues by dramatically decreasing the number of firms willing to access the public markets," stated the letter, which Kerry has refused to release but a copy of which has been seen by Bloomberg. Kerry has queried the need for a change in the tax law, which could penalise the private equity industry, and could be seen as an ally for venture capitalists in Congress.

The bill introduced by Senate Finance Committee Chairman Max Baucus and ranking Republican Chuck Grassley aims to prevent limited partnerships such as private equity funds from using the tax code to benefit from an exemption from corporate tax when going public. Baucus and Grassley insist that this is not so much a revenue raising measure as an attempt to iron out a loophole in the tax code which discriminates against other forms of companies which must pay corporate tax.

However, Blackstone's letter argues that the Baucus-Grassley proposals themselves are discriminatory because they are not concerned with other types of publicly traded partnerships such as real estate investment trusts and oil and gas pipelines. According to Blackstone there are political reasons for this omission.

"The only explanation for this glaring inconsistency is that the ethanol and energy industries are important to the states of Iowa and Montana and the financial services industries based on the east and west coasts and in other large cities are not," the letter said.

Blackstone, which went public in June, last week reported profits more than tripled to $774 million in the second quarter.

A comprehensive report in our Intelligence Report series examining tax-sheltering arrangements for investors, including Venture Capital, Forest Finance, Film Finance, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report5.asp

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