As is the case with most US political campaigns, the race for the White House between Mitt Romney and incumbent President Barack Obama is set to get dirty, if it hasn’t already done so. One of the key components of the campaign, as in any, is the economy. There is much greater focus on the economy during this election race, however, due to criticisms of how President Obama has dealt with the fiscal issues faced by the US since taking office in January 2009.
Part of this focus has shifted towards the tax affairs of Republican challenger Romney, who has been accused of using legal, yet not particularly moral, methods in order to bring down his level of income tax.
This has the potential to have a huge knock on effect on the private equity industry in the US, with many fearing that they are about to be landed with a huge tax bill.
After pressure from both the Obama campaign and his own Republican Party, Romney eventually opened up about his tax affairs, and proved that he had been paying what he should have been. Unfortunately, mud sticks in politics, and Romney’s liking for what Obama has called “vulture capitalism” could have huge consequences for private equity firms in the future.
While Obama has not been especially specific during his term in targeting those believed to be avoiding tax, it is widely believed that he will make it a point to do so quickly should he be re-elected.
The people most likely to be affected by this? Private equity investment managers.
Inevitably, this has led to many acting early in order to try and have written agreements that certain bonuses and dividends that they are paid throughout the year can remain at a certain level of tax. It remains to be seen whether that can be challenged in the Supreme Court, for example, as if it can you can expect to see a lot of private equity investment moving away from the US and to other countries.
The biggest irony of the whole episode is that the Romney campaign have bought this on themselves. Had they not gone down the route of making thinly veiled references to Obama’s heritage, would they have perhaps been targeted so aggressively in this way?
As it stands, Obama has found himself a great way to potentially win the vote of millions of Americans – Romney’s penchant for gaffes not withstanding – and strike a blow across the boughs of the now highly scrutinised private equity industry in the US.
This is a guest post. As a recent start-up company, Dealmarket offers a global private equity platform.
Image courtesy of David Castillo / FreeDigitalPhotos.net