Down-ticket races are key battlegrounds for PE voters

While the presidential race between former Secretary of State Hillary Clinton and businessman Donald Trump dominates the headlines, “if you look down-ticket, that’s where the challenges are,” said James Maloney, vice president of public affairs for industry lobbying group the American Investment Council.

In a keynote at the PartnerConnect West conference in San Francisco on Sept. 27, Maloney identified Sens. Pat Toomey (R.-Pennsylvania), Kelly Ayotte (R.-New Hampshire) and Mark Kirk (R.-Illinois) as key friends to the industry on Capitol Hill. All of them “are in very competitive states and are very supportive of our tax policies and private equity in general,” he said.

The three senators are in tight reelection races against Democrats who represent “polar opposites” on policy, Maloney said. Should all three lose, it could present problems for the industry’s lobbying efforts on Capitol Hill.

“I can’t tell you who to put your money behind. But I would say any of those three would be a smart person to put your money behind, if in fact the only place you were looking is how they treat private equity,” he added.

Any change to the tax treatment of carried interest, or the deductibility of interest payments, will depend on the appetite for comprehensive tax reform in the House and Senate. The same is true of bills that would change the ways in which the industry is regulated, Maloney said.

At this stage in the race, Maloney expects Democrats to pick up seats in both the House and the Senate, with more meaningful gains in the upper house. The presidential race is more of a toss-up, he said.

“I do think [the Senate] will be a 50-50 split with a Clinton administration. … Or we’ll have 51-52 on the Democratic side,” he said. “I do not see a super-majority on the Senate side.”

Both Trump and Clinton both advocated raising taxes on carried interest. But compared with carried interest’s status as a political football during Mitt Romney’s bid for the presidency, the topsy-turvy 2016 election cycle only occasionally touched on industry issues.

During the Sept. 26 debate, the first of three between the real estate mogul and Clinton, Trump claimed he would get “rid of the carried-interest provision” if he were elected.

Carried interest, the share of the profits that goes to PE firms and their executives, typically represents 20 percent of the returns a fund generates. The federal tax code treats those earnings as a capital gain, which is taxed at a lower rate than regular income.

Most GPs contribute only a small fraction of their funds’ total commitments, however, so political progressives and populists argue that carried interest represents income rather than a capital gain.

Industry executives, including many members of the American Investment Council, disagree.

“The taxation of carried interest is a sound, longstanding tax law that encourages long-term investment in capital assets, such as manufacturing plants, technology startups and many other businesses that drive our national economy forward,” Maloney wrote in a 2015 op-ed.

Action Item: Learn more about the AIC here: http://www.investmentcouncil.org/the-council/

The U.S. presidential nominees, Republican Donald Trump and Democrat Hillary Clinton, shake hands at the conclusion of their first debate at Hofstra University in Hempstead, New York, on Sept. 26, 2016. Photo courtesy Reuters/Mike Segar