Former Treasury Secretary Larry Summers initially supported the major tax, climate change, and health care bill that passed the Senate on Sunday. But he has a quibble with two of the late changes to the bill that let wealthy hedge fund managers and venture capital partners avoid paying higher taxes.
“I am pretty cynical, and hardly antibusiness in general, or private equity in particular,” Larry Summers said on Twitter, “but I am appalled by the end stages of the Senate bill’s passage.”
The well-known American economist said there was no legitimate public policy argument for how the legislation ultimately protected the carried interest loophole that lets big investors pay lower income tax on their earnings than average people. Such investors currently pay the capital gains rate of around 20% on most of their earnings, compared with the up to 37% that average people pay on their income.
The legislation’s goal, originally, was to narrow the loophole to make it harder for private equity managers to pay taxes at a lower rate.
Summers also mentioned the amendment to the bill, added Sunday during the Senate’s 15-hour debate, that excluded subsidiaries of private equity firms from the 15% minimum tax on corporations with profits over $1 billion.
Under the original language, if the combined income of companies owned by the same private equity fund amounted to $1 billion, all companies would have to pay the new tax. But a tweak made it so these companies would be counted separately, allowing them to avoid the 15% tax.
Democrats agreed to drop the carried interest provision and add an amendment to the bill’s existing 15% corporate minimum tax rate to get the votes needed to pass the broader legislation.
Summers blamed both Sen. John Thune (R-S.D.) and Sen. Kyrsten Sinema (D-Ariz.) in his Twitter thread: The two contributed to the amendment to the bill letting private equity keep the loopholes.
“It makes me despair of the general interest above the special interest,” Summers said.
He added: “For the rest of 2022, any private equity leaders purporting to speak about how private equity is or should be socially responsible should be asked what their firm has done directly or indirectly to support the loopholes here.”
