Politicians are agitating for a big tax hike on the private equity industry, but the motive for this talk may involve more than just a desire to have more money to spend. Holman Jenkins of the Wall Street Journal explains that politicians threaten an industry in order to extract campaign contributions. The column suggests this is what spurred the attack on the so-called junk-bond industry in the 1980s. Another good example would be the assaults on Microsoft and Intel. This does not mean politicians are like mobsters. Mobsters, after all, don’t add insult to injury by trying to rationalize their protection rackets as being for the public good:
Being a shrewd bunch, the private equity industry presumably has gotten the message: When vast new fountains of wealth open up in the economy, Congress must receive its ransom in campaign donations. Delivering the wagged finger were none other than Max Baucus and Charles Grassley, chairman and ranking member of the Senate Finance Committee, who’ve taken to musing aloud about how the tax code’s treatment of private equity’s lately fabulous profits might be revised. The bipartisan nature of the initiative should reassure readers that there’s no philosophical issue here. It’s purely bidness. You, private equity, have been remiss in your patriotic duty. Cough up. Anyone who recalls the junk bond wars of the 1980s will notice a pattern. Then too, Congress was awash in proposals for taxing the takeover industry: by eliminating the interest deduction for junk bond interest, by imposing an excise tax on assets acquired in a hostile takeover, etc. These ideas came to naught, not least because of the fright the proposals put into the stock market. But the endless debate unlimbered a delicious flow of campaign dollars from all concerned. …the message has been received. Private equity has now set up a Washington trade group and has opened its pockets to politicians, with Barack Obama being a special heartthrob. Oh, happy day for members of the House and Senate tax committees, who lived for years off the junk bond wars and now will live for years off the private equity plutocrats.