Private equity (PE) firms make long-term investments in companies poised for growth as well as undervalued or underperforming businesses. The private equity funds created by private equity firms to invest in various companies throughout the economy are often backed by capital from institutional investors, including public pension funds. PE funds have long played a major role in the development of a broad range of companies, which employ 8.8 million people across the United States, including several hundred thousand people across every state, such as Hilton Hotels, Popeyes, Uber, Airbnb, Dollar General, Dunkin Donuts, Jiffy Lube, LA Fitness, Tate’s Bake Shop, Beats Electronics, The Nature’s Bounty, and McGraw-Hill Education.
All told, the private funds industry drives a significant amount of economic growth in the United States and supports millions of jobs across the country. After multiplier effects on the economy, such PE-backed companies and the PE firms themselves support over 26 million jobs and
contribute over $475 billion in annual Federal and state/local tax revenues.
Private equity fund investments also provide significant assistance to pensions and public retirement systems, including the three largest funds (California Public Employees’ Retirement System, California State Teachers’ Retirement System, and the New York State Common Retirement Fund) as well as other significant funds (the Massachusetts Pension Reserve Investment Management Board and the School Employees Retirement System of Ohio). Private equity firms contribute over $6.4 billion annually to federal tax revenues and over $2.6 billion to state and local tax revenues.
However, proposed legislation in the current congress, the Stop Wall Street Looting Act (S. 2155/H.R. 3848), would impose significant restrictions, liabilities, and tax increases on the industry. Specifically, the legislation would seek additional caps on leverage for private equity, would tax profits at ordinary tax rates rather than as capital gains, and would hold private equity firms liable for all debts, legal judgements, and pension obligations of their portfolio companies. Additionally, the legislation would reorder bankruptcy law by having courts consider workers’ interests above other financial considerations in the bankruptcy process.
As a result, this study finds that these restrictions and taxes would be so impactful that, if enacted, even in a modest-case scenario, the country’s workforce would be reduced by approximately 6 million jobs, and combined federal, state, and local tax revenues would drop by approximately
$109 billion per year in the long run.