Of all the business owners who have shown up to the president's door since the election, dignity in hand, few have done so as skillfully as Steve Schwarzman. He chaired Trump's strategic policy super-team (at least until he got annoyed at being called a Nazi), wangled Blackstone into a Trump-sponsored $40 billion Saudi infrastructure investment fund, and still manages to get regular quality time with the extremely busy president, presumably eking a few minutes out of the interim between Fox and Friends and the Tweeting Hour.
Unsurprisingly, his cozy relationship with Trump has opened Schwarzman up to a fair bit of criticism – namely that he's acting in his own best interest. But now that the GOP has dropped their long-awaited tax plan, Schwarzman could soon be getting some concerned calls from his own peers. Why? This:
For business, the proposal reins in companies’ ability to deduct debt interest payments from their tax bills — a break that is vital to sectors including real estate and private equity — but seeks to maintain the benefit for small companies.
Though the carried interest tax treatment (i.e. “hedge fund loophole”) is safe in the version of the tax reform rolled out Thursday, corporate interest deductibility has been limited to 30 percent of Ebitda for most companies (small ones excluded).
For an industry like private equity, for which debt functions the same way oxygen does for mammals, it's not pretty. They can take some comfort in the overall corporate rate cut, but the interest deductions aspect makes it kind of like getting the winning run home by taking a nut shot with the bases loaded.
Needless to say, the affected industry are planning to fight like hell:
Businesses have formed a group, called the BUILD Coalition, to oppose the provision. Members include Abbott Laboratories (ABT.N), Owens-Illinois (OI.N), S&P Global (SPGI.N) and lobbying groups for private equity firms, farmers, mortgage bankers, real estate investment trusts, casinos and equipment leasing groups.
But ultimately this one comes down to private equity's point man in the Trump orbit. If Schwarzman can't turn this L into a W – or at least a slightly smaller L – then what's the use of all this informal strategic adviser nonsense in the first place?
UPDATE: At 2:30p, the stocks of several publicly traded private equity companies abruptly plunged. Blackstone is down 2.5 percent, Apollo 5.2 percent. Why the deductibility issue took five hours to register among investors is a mystery.