The Association for Corporate Growth (ACG) continues its mission of addressing public policy on March 7, when members and elected officials gather in Washington, D.C. for the second year to attend the Middle Market Growth Policy Summit.
More than 100 organization members are expected to weigh in on issues regarding private equity and its relationship with Capitol Hill, including revenue via tax reform.
The event serves as a platform for ACG to educate policy makers and the public about the benefits of private capital, says ACG chairman Charles Morton.
With it being almost a year since the ACG launched the GrowthEconomy.org website, guests will be presented with supporting data that dispel some of the misperceptions people have about private equity, Morton adds.
On March 7, the ACG released a book called "Driving Growth: The Impact of Private Capital on the U.S. Economy," which also details sales and job growth of private-backed companies versus other companies in the U.S. by state and congressional district.
Mergers & Acquisitions will be there, and so will Jim Himes (D-CT), a former Goldman Sachs banker, and David Schweikert (R-AZ), founder of Sheridan Equities LLC, a real estate business. We caught up with Morton just before the event to talk about some of the ACG’s goals and concerns, along with how the policy summit will attempt to further educate lawmakers.
What public policy issues pertaining to middle-market private capital and investment are expected to be addressed at the Middle Market Growth Policy Summit?
We’re in the middle of a broad discussion over tax reform and how it affects very large businesses and special interest groups. Our fear is that the middle market is overlooked. We intend to participate in a discussion that will include taxing S corps the way C corps are taxed, which would create a second level of tax and hurt a lot of middle market businesses. Then there’s the capital gains tax rates increasing, taxing income made from off-shore investments. With all of these discussions, middle-market businesses have a lot of invested interest in the outcome. Limiting, or completely removing, the deductibility of interest on corporate debt, for example, would dramatically limit the ability of companies to fund expansion. If you’re conducting business overseas, in the current environment, you would be taxed just overseas. But there have been talks that U.S. companies with overseas investments should also be subject to taxation in the U.S..
How will you demonstrate the eonomic performance of companies funded by private capital investment?
We have been able to slice and dice the growth economy around congressional districts by conducting analysis of the ways private capital funds business and drives the American economy. So for example, based on the most current data, one out of 20 jobs in America is provided by private capital-backed businesses, impacting millions of families across the country in almost every congressional district. GrowthEconomy.org updates and refines the data so we get more confident about our conclusion that private capital-backed businesses grow jobs at roughly 3.5 times the rate of non-private capital business. From 1995 to 2010, private capital-backed companies grew 64.4 percent, while other companies in the U.S. economy grew jobs by 18.3 percent.
What message do you hope to convey to policy makers?
This event reflects part of a multi-year strategic effort by ACG to be the voice of the middle market and change the public debate about the role and importance of private equity. It’s going to take a long time, and effort on a lot of different fronts, but we’ve made enormous strides in the past year. For example, we started to do advocacy work on Capitol Hill, finalized our first policy agenda, which we will also unveil on March 7, and we‘ve been very successful at getting media coverage.
What do you expect of representatives Jim Himes (D-CT), a former Goldman Sachs banker, and David Schweikert (R-AZ), founder of Sheridan Equities LLC, a real estate business?
They are important players on Capitol Hill when it comes to these discussions. They also spoke last year. They understand the PE industry better than many members of Congress, and are able to both understand what we’re saying and educate their colleagues. They are particularly inspiring, because of their ability to work across the political aisle. Our real goal is to try to be certain that the public debate over private capital is well informed and does not resort to caricatures or shouting. We’ve come through a period when the industry was subject to partisan attacks and, frankly, had not been active or as active on Capitol Hill as we should have been.
What solutions does the support as a means of generating $1.6 trillion in new revenue, as the federal government looks to do?
The thing I fear, frankly, is, given the effort to raise revenue, it will be counterproductive. By changing the characterization of carried interest, the amount of money involved is relatively minor. It distracts attention from the broader collection of efforts that could help balance the budget and facilitate growth. The easiest way to increase revenue is to have growth. Much like a doctor, a politician’s first commitment should be to do no harm. There are lots of things they can do to impede growth, but there are certain things the government can do to encourage growth. The EB-5 visa program, for example, rewards folks overseas who make investments in U.S. companies with easier access to obtaining a green card. That’s a very good program to encourage investment in the U.S., and its popularity is exploding.
The Small Business Investment Company (SBIC) program has encouraged a wonderful public/private partnership that has encouraged low-cost leverage to investment vehicles that invest in small businesses in the US. It generates returns both directly and indirectly. Those are just two examples of policies in which the government is doing something positive to encourage growth. My sense is that our policy agenda reflects this. It discourages the government from doing things that are counterproductive. Our goal is simply to educate. We think that by people understanding the role of private capital, it makes it easier for folks to embrace policies that are good for the country.