Venture Capitalist Tells Congress Tax Break Not Fair
Bill Stanfill’s business associates wanted to know what it would take to keep him from testifying to Congress.
The Denver venture capitalist answered simply:
Nothing could stop him.
“If you can’t swim against the current when you’re 71, when can you?” Stanfill wondered.
He posed the question in an interview last week, days after returning from his second trip to Washington to offer Congressional testimony on a pair of bills that would raise taxes on what he calls “the masters of the universe” – venture capitalists, hedge fund managers and private equity firms.
Current law lets some of the richest of the rich pay taxes at rates far less than working class folks, Stanfill insisted. Hedge fund managers, private equity firms and venture capitalists pay a 15 percent tax rate on much of their income, which comes in the form of something called “carried interest.” Carried interest is treated like capital gains, said Stanfill, even though it is equivalent to the regular income on which others pay income tax rates up to 35 percent.
This policy lets the rich get richer, according to Stanfill.
“For me, it’s not a revenue issue,” he said, “It’s a fairness issue.”For many of those in his business and the other businesses affected, the issue is Stanfill’s perceived betrayal of capitalism’s driving force:
The almighty dollar.
Supporters of the current tax break on interest earned by equity firms, venture capitalists and hedge fund managers claim they risk more than the average Joe and are therefore entitled to a better return. They say higher taxes will kill many important deals.
“I just got a nasty email from one of my former partners that said he disagreed with everything I said in my testimony,” Stanfill said, sitting in his sixth floor suite of offices in downtown Denver’s Equitable Building.
The trappings of the good life surrounded him – spacious accommodations, nice furniture, an expensive collection of original paintings and photography.
Stanfill argued to committees in both the House and Senate that guys like him will still make deals and still enjoy lavish lifestyles without tax breaks on what is called “carried interest.”
“Many Americans invest sweat equity in their jobs and their businesses, take risks, contribute to the economy and may still have to wait a long time before their hard work pays off,” Stanfill told Congress. “To the extent that we (hedge funds, venture capital and private equity) take risk, we take it with other people’s money.”
This is the dirty little secret of the wealthy, particularly under George W. Bush’s administration.
“Since Bush came into office, there have been six tax cuts,” Stanfill claimed. “Most have gone to the Masters of the Universe. Furthermore, the gap between rich and poor is obscene.”
Yet any talk of closing that gap is considered heresy by the wealthy.
In Congress Stanfill faced off against the big boys, including the managing director of the Carlyle Group, one of the most powerful and politically connected private equity firms in the world.
The current President Bush and his father have both worked as director or advisor for Carlyle or its network of businesses.
In his movie “Fahrenheit 911,” filmmaker Michael Moore claimed Carlyle’s connections to both the Bushes and the Saudi Arabian royal families – including the family of Osama bin Laden – drove the United States decision to invade Iraq.
“Those guys write big campaign checks,” Stanfill said.
He believes the influence of that money caused Democratic senators like John Kerry and Charles Schumer to give his testimony a cold shoulder.
Still, Stanfill thinks his point of view will eventually prevail.
“Congress,” he noted correctly, “faces huge budget deficits.”
Making private equity firms, venture capitalists and hedge fund managers pay regular income tax rates on the interest they earn would provide a new multi-billion-dollar annual revenue stream. That stream would affect only a few of the country’s wealthiest players, and it would only minimally affect their quality of life.
The rich, Stanfill argued to Congress, don’t need or deserve a tax break while school teachers, soldiers and everyone else are paying a greater percentage of their income in taxes.
In some quarters, it was as if the Denver businessman had sold out his own by telling the truth.
As he testified to the House Ways and Means Committee two weeks ago, Bill Stanfill drolly asked committee chairman Charles Rangel, “Could you introduce me to someone who knows about the federal witness protection program?”
Stanfill’s life may not be in danger. But he’s paddling so hard against the current that his colleagues sure wish he’d choke on a rogue wave and shut up.
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