Liz Mair

Considering this scenario, it is clear that penalizing private equity firms, who are prepared to take risks in order to make a buck while rescuing entities like General Motors—saving thousands of jobs and pensions at the same time—is not in the best interests of government, taxpayers, or society at-large. Yet this is precisely what Mr. Baucus and Mr. Grassley propose to do, in respect of publicly-traded private equity firms: force them to pay an extra 20% to the government each year—20% that could have been invested in companies that provide jobs, and used to bolster the American economy.

At the same time as curtailing the ability of publicly-traded private equity firms to invest and work to avert impending disasters arising out of insolvencies or, just as often, stagnated corporate growth, Mr. Baucus and Mr. Grassley are of course curbing the free market, and discouraging entrepreneurship. More worryingly, by financially constraining a high-yield industry, into which many public sector pension funds invest in order to counterbalance investments into lower-yielding stocks and bonds, they are also risking less prosperous retirements for teachers and policemen.

And, Mr. Baucus might care to note that his plan also potentially damages industries that progressive-minded voters in his party would like to see bolstered. Private equity is a top investor in companies that develop, manage and staff nursing homes (which at present are in short supply, and that means that beds come at an exorbitant cost), and in companies pioneering energy-saving and environmentally-friendly technologies—which tend not to be so popular with shorter-on-cash, conservative investors, who see them as risk-prone.

All in all, what Mr. Baucus and Mr. Grassley have proposed is a deeply flawed piece of legislation which could prove disastrous—for the private equity industry, and for many ordinary Americans.


Liz Mair

Liz Mair is lawyer, columnist and consultant from Arlington, VA.

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