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Private Equity Group Takes On Tax Reform

The private equity industry isn’t ready to let a nasty presidential campaign detract from next year’s legislative wish list.

The industry’s trade association is redoubling efforts to burnish its image, anticipating a fresh round of attacks on presumptive Republican presidential nominee Mitt Romney’s role at Bain Capital. 

But a multimillion-dollar campaign under way by the Private Equity Growth Capital Council isn’t just about playing defense. The industry has a major stake in corporate tax reform and wants to prime lawmakers and their constituents for its appeals next year.

Lawmakers are eager to rewrite the corporate tax code, and private equity firms could be targets of several of the proposals to raise revenue, including a bipartisan effort to deter corporations from hanging on to debt. 

While there is broad support for lowering the corporate tax rate, it isn’t clear how Congress would offset hundreds of billions of dollars in lost revenue. The private equity industry is trying to capitalize on the indecision.

“A lot of this is being done with an eye on 2013,” said Ken Spain, a spokesman for the group, which is running online advertisements in a dozen battleground states, including Ohio, North Carolina and Colorado, to drive “influential voters, media types and policy-makers” to its website.

Romney’s 15-year tenure at Bain Capital has been a favorite line of attack for Democrats eager to portray such firms as symbols of corporate greed and excess.

The trade group today released the third in a series of nearly a dozen promotional videos it plans to put out before the election.

In February, the 5-year-old association also set up its first political action committee, which has already raised about $300,000 and gives primarily to Republican Members of Congress.

It has connected 40 lawmakers with private-equity-backed companies through Washington, D.C., fly-ins and facility tours, such as Democratic Rep. Jared Polis’ visit last week to FreeWave Technologies Inc., a company in his Colorado district that received $113 million from TA Associates. 

So far this year, the group has spent $500,000 lobbying, according to federal filings. It wouldn’t disclose how much it’s spending on the promotional effort.

The group on Tuesday released an Ernst & Young report it paid for highlighting the negative effects of proposals that limit the corporate deductibility of interest expenses, a proposal supported by the administration and lawmakers in both parties.

Most tax experts agree that the current tax code encourages businesses to take on debt because they can deduct interest on various debt-financing instruments but not dividend payments to owners of their stock. 

Limiting the deduction could present a rare opportunity for bipartisan agreement on taxes. Policy experts say it would not only raise revenue but also help the economy.

The lobby appears to have stymied Democratic efforts to close the “carried interest loophole” that allows investment managers to derive income from investor profits, and it may wield similar influence on debt-financing.

Private equity firms buy troubled or stagnating businesses, make improvements and resell them at a profit for investors. They argue that limiting a firm’s ability to deduct interest payments will deter future investment.

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