Testing the boundaries of tax policy and really, nerding out on stage in front of a couple dozen lawyers in Los Angeles is a guy named Victor Fleischer.
He’s a celebrity in this crowd. A tax paper he wrote is now an applause line about income inequality at the chicken dinners across America that form the backbone of the presidential campaign. No tie today. It’s a gray button-down shirt with the collar open and a black sports coat. His boyish looks, capped by short-cropped red hair, earned him the moniker “Bazooka Joe” among critics.
These days there are lots of them, but lots of fans too. Fleischer is best known as the intellectual godfather of the crusade to end a tax break on carried interest, making him the scourge of private equity firms like Blackstone Group LP.
In late 2006, Fleischer wrote what in retrospect was an impeccably timed paper exploring how and why private equity managers paid lower capital gains rates on their huge profits. His argument put him in front of Senate staff, who almost immediately targeted an industry long accustomed to operating in the shadows of Wall Street. With more than a trillion dollars of assets managed among them, firms like Blackstone, KKR & Co. and Carlyle Group LP had emerged from those shadows to pull off eye-popping, record-breaking leveraged buyouts. The light Fleischer cast on them was especially bright, revealing what he says is a tax loophole that helped make the founders of those firms billionaires several times over.
The attention coincided with Blackstone’s pursuit of an initial public offering -- as well as chairman Steve Schwarzman’s lavish 60th birthday party and Fortune magazine cover. A barely formed lobbying group ,then called the Private Equity Council, mobilized to fight changes to the tax treatment. Through a sustained effort and some lucky politics, they’ve so far fended off any changes. Still, some of the industry’s leading managers concede change is a matter of when, not if.
What was a sort of a rallying cry when former private equity executive Mitt Romney was running for president has resurfaced, with at least some in both parties calling for change. Some Democrats and even Donald Trump have gotten in on the debate. Fleischer thinks Obama could scrap the carried interest provision in an executive order.
In L.A. he’s going even further, suggesting Congress do away with the favorable tax rate for capital gains altogether, arguing that the discount has outlived its purpose and goes to a disproportionately small number of fund managers.
“This is what’s driving inequality,” he says.
Talk like that, and phrases he’s coined like“distributive justice” in the tax code, make him sound like a hard-core Democrat. But Fleischer advises politicians of all stripes. A few weeks ago, he was on the phone with New York Republican Tom Reed about a bill the congressman is drafting to require college endowments to direct earnings toward cutting tuition or risk losing favorable tax treatment. It’s an approach Fleischer likes.
He doesn’t describe himself as faithful to any party and he knows taking political positions puts his academic credibility at risk. “I’m definitely concerned about that,” Fleischer said in an interview with Bloomberg BNA. “I think most academics have an agenda, and some don’t talk about it.”