Ken Blackwell
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Nearly 11 years ago when I was Ohio’s treasurer, Jack Kemp and I crisscrossed the nation as members of the congressionally-created Commission on Economic Growth and Tax Reform. We spoke with and listened to thousands of Americans from all walks of life. One of our most substantial finds was the need to radically reduce taxes on capital and labor.

Residential realtors understand the benefits. In fact, the proposed tax tinkering effects them too. They argue that without the capital investments in communities the funds provide, many residential markets will lose their attractiveness. And, the American dream of home ownership will become more elusive for many more.

Commercial realtors get it as well. Incoming chairman of the International Council of Shopping Centers, Adam Ifshin, recently told a Senate committee that the tax increase would be “the most sweeping and potentially most destructive tax on real estate” in decades.

Mr. Ifshin’s concern is driven by the understanding that investors and fund managers will seek other markets if increased taxes threaten their profit margins in America.

And that’s the primary issue.

The U.S. economy is losing jobs to foreign competitors. The departure of private equity capital will almost certainly guarantee job loss and shake our mercurial economy.

The situation becomes dire when you factor in extremely high corporate tax rates. Our main global competitors all have lower corporate taxes. With substantially lower tax rates and seemingly boundless growth potential, China, India, and many Eastern European countries are posed to dominate the global private equity market.

These nations will be bolstered by the inevitable influx of American investor capital and the valuable expertise of our private equity managers.

The managers will find it more profitable to grow other economies. And if Congress effectively shows them the door, they will leave. Capital always seeks the path of least resistance and greatest opportunity.

A partner at the Washington, D.C., based private equity firm Carlyle Group, Bruce Rosenblum, cautioned Congress to “move with great caution before it changes the incentives that exist today for investors to nurture and grow such businesses.” His comments were echoed by the assistant treasury secretary, Eric Solomon, who reminded Congress that the flexibility offered to such partnerships has a role in the strength and resiliency of the American economy.

Think about it: private equity managers are responsible for growing funds for investors. An enormous tax increase reduces their incentives and the gains returned to investors. Why then would they focus on rescuing and restructuring American companies and creating American jobs when it’s more profitable to do so abroad? These are the questions facing the tax hungry in Congress whose eyes many be bigger than our economy can stomach.

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Ken Blackwell

Ken Blackwell, a contributing editor at Townhall.com, is a senior fellow at the Family Research Council and the American Civil Rights Union and is on the board of the Becket Fund for Religious Liberty. He is the co-author of the bestseller The Blueprint: Obama’s Plan to Subvert the Constitution and Build an Imperial Presidency, on sale in bookstores everywhere..
 
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