When Donald Trump said he wanted to “Make America Great Again” he seems to have forgotten to say the part about “by making the rich get richer.” Turns out America’s private equity billionaires could be doubling their fortunes if a tax adjustment Trump wants to make comes to fruition. While the President-elect has talked about eliminating the private equity industry’s carried interest tax deduction, if that comes along with a larger tax reform, it could actually create an even bigger money-earning opportunity for that industry.
A recent article in Forbes, explains that lowering corporate and individual tax rates could give private equity firms a reason to convert from tax-avoiding pass-through partnerships into regular corporations. This would allow them to offer their shares to a larger investor base. Forbes name checks some bigwigs who could end up benefiting from this, citing: Blackstone’s Stephen Schwarzman and Jonathan Gray, Apollo’s Leon Black, Joshua Harris and Marc Rowan, KKR’s Henry Kravis and George Roberts, Carlyle’s David Rubenstein and William Conway, and Oaktree’s Howard Marks.
“We’ve avoided in the past the double taxation and that’s what drove us to the [pass-through-partnership],” Apollo CEO Leon Black said at a Goldman Sachs conference last week. “But if rates come down a bunch in that doubling of taxation it may not be the worst thing in the world given that in a corporate form we’re a much less complicated entity,” he added.
Scharzman weighed in on Trump’s agenda recently at the Goldman conference, thusly, “If you look at the architecture of the financial world it is going to change very substantially. I anticipate with a pretty high level of confidence that this stuff is going to happen,” he said of tax reform, before stating it is “as big a change happening all at once” as he’s seen in his 45-year career on Wall Street.
The bottom line is: If this happens, it could propel these already rich Wall Streeters in “to a new stratosphere,” turning billionaires into bazillionaires.