creators.com opinion web
Conservative Opinion General Opinion
Jim Hightower
Jim Hightower
27 Aug 2014
Rick Perry's Clown Show

Trial lawyers will tell you that any good prosecutor could convince a grand jury to indict a ham sandwich. Well,… Read More.

20 Aug 2014
What we've Paid for War and Afghanistan and Iraq

War is Hell. Major General Harold Greene could certainly tell you all about that — but, sadly, he's dead.… Read More.

13 Aug 2014
What's Wrong With the GOP's "Hell no" Faction

Ah, August — that time of year when the going gets tough ... and Congress gets going. On vacation that is.… Read More.

The Inequity of Private-equity Hustlers

Comment

What are these phantasmagoric money machines that they call "private-equity firms?" They're much in the news these days, because a fellow who was a private-equity magnate is presently running for president. Mitt Romney piled up a quarter-billion-dollar personal fortune through his Wall Street equity outfit, Bain Capital, and he now claims that, because of his success in that business, he knows how to "fix" our economy.

Before you cheer that, note that private equity whizzes are all about The Fix — not necessarily a good thing. They operate by borrowing big piles of cash at high interest rates from rich speculators to buy out XYZ Corp. Then, to meet the interest payments owed to the speculators (and to siphon off a financial killing for themselves), the fixers do two things: One, they plunder XYZ's assets, selling the profitable chunks of the corporation; and two, they severely downsize the XYZ workforce, firing as many workers as possible and demanding deep wage cuts and benefit givebacks from the employees they keep.

It's a raw redistribution-of-wealth scheme, shifting XYZ's wage payments from its many workers to a handful of wealthy high-rollers. The process downsizes America's middle class, while creating no real economic value. Nothing equitable about it.

But the fix also includes a set of very special partners, few of whom are even aware that they're in on the deal: taxpayers. The private-equity business model is not structured on old-fashioned, free-enterprise principles, but on a skewed system of tax loopholes punched into federal law by these financiers' lobbyists and the lawmakers who do Wall Street's bidding.

For example, the equity funds are able to load up on such heavy debt to finance their corporate takeovers only because all of the interest they must pay to speculators for that borrowed money is tax-deductible. In other words, our government directly subsidizes private-equity plundering by covering their huge interest payments.

To add to their fun, many of these tax-code scammers grab such big debt deductions each year that they end up paying zero corporate income taxes, even though they rake in millions in profit.

To put a name to this financial flimflammery, let me tell you a corporate morality tale that I call "The Shame of Shamu."

Actually, Shamu is not the cause of the shame.

After all, that's just the generic name given to the killer whales kept in captivity as the star attraction at all three theme parks operated by SeaWorld, Inc. The shame belongs to the corporation, which not only profits from its exploitation of the whales, but also manages to dodge paying even a penny in national or state income taxes. Based in Orlando, Fla., this sprawling entertainment conglomerate pocketed record profits of $380 million last year but paid zero taxes on it.

This is because SeaWorld is owned by Blackstone Group, a multibillion-dollar private equity giant that specializes in acrobatic accounting and spectacular twistings of our tax laws.

For example, Blackstone structured its 2009 takeover of SeaWorld so that it could immediately begin grabbing tax deductions under the law's convoluted depreciation rules. Also, the Wall Street group paid 60 percent of the $2.5 billion purchase price with high-level-interest loans from wealthy speculators — yes, that makes the huge interest payments on that debt totally deductible from Blackstone's tax bill.

Thus — Shazam Shamu! — this bit of Wall Street hocus-pocus let's SeaWorld pull big profits out of its hat, while the taxes owed by SeaWorld's private equity owner — Poof! — disappear. Well, admitted a corporate spokesman, that's true, but the group "operates entirely within the letter and spirit" of the law.

Of course they do! That's an easy trick for them. Blackstone is a whale in America's political pool, funneling millions of dollars a year into lobbyists and politicians to rig the law. It has already spent $7.3 million lobbying the current Congress and another $1.3 million (so far) on campaign donations for this year's elections.

Those donations include $173,000 to back Mitt Romney — who promises if elected to make tax laws even more favorable to money manipulators like Blackstone. The moral is that you don't need magic if you're wired to power.

To find out more about Jim Hightower, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate webpage at www.creators.com.

COPYRIGHT 2012 CREATORS.COM



Comments

0 Comments | Post Comment
Already have an account? Log in.
New Account  
Your Name:
Your E-mail:
Your Password:
Confirm Your Password:

Please allow a few minutes for your comment to be posted.

Enter the numbers to the right:  
Creators.com comments policy
More
Jim Hightower
Aug. `14
Su Mo Tu We Th Fr Sa
27 28 29 30 31 1 2
3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30
31 1 2 3 4 5 6
About the author About the author
Write the author Write the author
Printer friendly format Printer friendly format
Email to friend Email to friend
View by Month
Froma Harrop
Froma HarropUpdated 2 Sep 2014
Marc Dion
Marc DionUpdated 1 Sep 2014
Mark Shields
Mark ShieldsUpdated 30 Aug 2014

21 Mar 2012 Banker Hubris Knows No Bounds

9 Nov 2011 Don't Just Salute Veterans, Rally With Them

18 Dec 2013 The Washington-Wall Street Mutual Backscratching Society