Private equity will survive paying tax

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The FT reports this morning that:

Buy-out groups could find ways to get round a proposed US tax rise by developing new financing structures or by offsetting some of the burden by cutting returns to pension funds and other investors, a private-equity executive said on Tuesday.

It continued:

Bruce Rosenblum, chairman of the Private Equity Council and a top executive at Carlyle, said big groups such as his would be able to "weather the storm" if Congress passed a bill that would greatly increase tax on private-equity and hedge-fund managers' earnings. But he predicted that such a law would eventually diminish the sector, make the US less competitive and put smaller firms at risk. "There will be deals that won't get done, entrepreneurs that won't get funded, and turnarounds that won't be undertaken," he told the Senate finance committee.

I entirely agree with those last comments. But let's be clear: if these commercial activities can only survive with state aid (and that's what this tax subsidy is) then they shouldn't be happening. State aid is not intended for that purpose. So this is welcome, not a problem.


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