Politics: A possible change to the GOP tax bill would be a huge boost to multibillion-dollar private-equity companies

An amendments to the Republican tax bill would give a huge deduction to the executives of publicly traded private equity firms like Blackstone and Carlyle.

• A new amendment in the Republican tax bill would allow publicly traded partnerships to take the pass-through business deduction.
• Many large private-equity firms, like Blackstone, are set up as publicly traded partnerships.
• The change would give the owners of these multibillion-dollar firms a large tax break that Republicans say is designed for small businesses.

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A provision in the final Senate Republican tax bill would serve as a huge boon to large private-equity companies.

An addition to the final Senate GOP bill, first introduced as an amendment by Sen. John Cornyn — the second-ranking Republican in the Senate — would allow owners of publicly traded partnerships (PTPs) to take a deduction for pass-through businesses on their income. That deduction was increased to 23% in the latest version of the Senate Tax Cuts and Jobs Act.

Republicans have touted the pass-through provision, which allows companies in which the owner takes business profits as income, as a way to boost small businesses. Most large private-equity firms, such as Blackstone and Carlyle Group, are classified as PTPs.

According to Victor Fleischer, a tax-law professor at the University of San Diego and New York Times contributor, the proposed change would allow executives at large financial-services firms to take advantage of the deduction as well, bringing down their tax liability on fees from trading.

"The new special pass-through deduction doesn’t generally apply to financial-services income (or law or accounting etc.)," Fleischer told Business Insider in an email. "The Cornyn amendment would extend this new tax break to PTPs."

This would be beneficial, Fleischer also tweeted, for the executives at the major private-equity firms.

"To clarify — that means Schwarzman, Rubenstein etc. KEEP 20% rate on carried interest AND get new 23% deduction on management fees & other income streams," Fleischer tweeted on Friday.

Additionally, mater limited partnerships (MLPs) could also get the deduction as many of them are considered PTPs. Many energy companies are classified as MLPs to enjoy the tax benefits of a partnership. Many large MLPs are based in Cornyn's home state of Texas.

Another change, according to Fleischer, could provide a big tax break to real-estate firms.

"This could also have a huge impact for hedge funds and real estate," he said in an email. "It also undermines the [real-estate investment trust] rules because rental income is now subject to a lower tax rate through a PTP than through a REIT."

Put another way, a real-estate company could reclassify as a PTP instead of a REIT and get the pass-through deduction on income made from rents.

Sen. Claire McCaskill, a Democrat, tweeted a photo of a list of amendments that were set be added the final version of the tax bill. It included the PTP provision.

Steve Schwarzman, the CEO of Blackstone, was an adviser to President Donald Trump and helped lead his council of business executives. The council was disbanded earlier this year after Trump's response to the violence in Charlottesville, Virginia.

The Senate is expected to vote on the Tax Cut and Jobs Act on Friday. It is expected to pass.

A representative for Cornyn did not immediately respond to a request for comment.

An amendments to the Republican tax bill would give a huge deduction to the executives of publicly traded private equity firms like Blackstone and Carlyle. Read Full Story