Private Equity Stakeholder Project Supports Repealing the Carried Interest Loophole as Part of the Inflation Reduction Act
Closing the carried interest loophole is long overdue. This tax giveaway has given private equity firms an unfair advantage and has generated enormous wealth for a few rich executives.
For example, KKR’s top executives Henry Kravis and George Roberts each took home $67 million in carried interest in 2021. Blackstone’s Steven Schwarzman was paid over $150 million in carried interest last year.
Private equity firms and executives have put very little of their own capital at risk, yet have reaped a massive tax benefit from the carried interest loophole while harming workers, patients, renters, and vulnerable communities, while exacerbating climate change.
The private equity industry has increasingly drawn on federal government funding even as private equity firms and executives have aggressively dodged taxes.
Private equity owned healthcare companies draw on billions of dollars a year in funding from government-run healthcare programs like Medicare and Medicaid, and were some of the largest recipients of federal Covid aid.
Yet, private equity firms have had a significant role in cases of Medicare and Medicaid fraud in the healthcare industry. In fact, there is substantial overlap between the profit-seeking behavior exhibited by private equity owners of healthcare companies and fraudulent activities targeted by the False Claims Act (FCA). Since 2013, at least 25 healthcare companies have paid settlements totaling over $570 million for allegedly violating the FCA while under private equity ownership. The private equity owners of those companies currently own around 200 other health care companies combined.
Private equity firms have bought up growing portions of US housing, filing to evict thousands of renters during the Covid-19 pandemic and dramatically raising rent. In the last few years, private equity firms including The Blackstone Group and Starwood Capital have become some of the largest owners of subsidized affordable housing in the United States, acquiring apartment properties with more than 138,000 units backed by the Low-Income Housing Tax Credit and other federal housing programs meant to create affordable housing.
Private equity firms have invested over $1 trillion in energy since 2010, with well over 80% being in the very fossil fuels that are contributing to the current climate crisis. They are part of the problem. The revenue created by eliminating the carried interest tax loophole should be used towards financing a just energy transition away from fossil fuels.
Private equity-owned companies directly employ more than 11.7 million of workers in the United States, plus millions more around the world, and the number continues to grow as private equity firms are acquiring additional companies at a record pace. Focused on growing cash flows at the companies they buy, private equity firms have often taken a low road approach and sought to reduce wages, benefits, and staffing at firms they acquire – with devastating consequences to workers, their families and entire communities.