If the private equity industry is destroyed, American businesses, pension funds and government tax agencies will follow, a top U.S. Chamber of Commerce lobbyist told members of the Senate Banking Committee today in a letter opposing the “Stop Wall Street Looting Act.”

The legislation would make it “extremely difficult, if not impossible, for private equity to continue its productive contributions to the American economy via their investments in Main Street businesses,” said Tom Quaadman, the executive vice president of the chamber’s Center for Capital Markets Competitiveness, in a letter to Senate Banking Committee Chairman Sherrod Brown, an Ohio Democrat, and Ranking Member Pat Toomey, a Rhode Island Republican.

The legislation, which was first introduced in 2019, would ban dividend payments to investors, ban excessive compensation, require leveraged lenders to retain risk on their own balance sheets, toughen bankruptcy law and institute other restrictions such as increasing taxes on carried interest capital gains, measures that the chamber says would hamper private equity funds.

Assets held by private equity firms have grown from $1 trillion before the 2008 financial crisis to more than $7 trillion today, according to Goldman Sachs. 

“Private equity funds have long played a major role in the development of a broad range of companies which employ 8.8 million people across the United States,” Quaadman said in the letter to lawmakers.

“Private equity firms make long-term investments in companies poised for growth as well as undervalued or underperforming businesses, and the private equity funds created by such firms invest in various companies throughout the economy,” he added. They “are often backed by capital from institutional investors, including public pension funds.”

The “Economic Impact Analysis of the Stop Wall Street Looting Act” study, commissioned by the chamber when the bill was first introduced in 2019, found that the bill, if enacted, would result in:

  • The loss of between 6.2 million and 26.3 million jobs across the U.S.
  • The loss of $109 billion to $475 billion annually in tax revenues across federal, state and local governments.
  • The loss by public pension funds of at least $329 million (and possibly up to $1.65 billion) annually caused by the switch to lower-yielding investments.
  • The loss for investors of $671 million to $3.36 billion per year.
  • The failure or downsizing of many firms that normally seek private equity financing.
  • The potential elimination of the private equity industry as a whole.

Critics of private equity firms, however, maintain that loopholes and exceptions in law and regulation create incentives for the firms to load the companies they acquire with excessive debt and drain money to enrich themselves. 

Andrew Park, a senior policy analyst for the consumer trade group Americans for Financial Reform (AFR), which supports the bill, said in a statement, “Right now, private equity moguls can’t lose when they buy a company with mostly debt that they are not jointly liable for, but can siphon off management fees, dividends and other payments. Too often workers and communities pay the price. This legislation would end such loopholes that reward looting that should never have been allowed in the first place.”

The bill’s sponsors include Sen. Brown, Sen. Elizabeth Warren (D., Mass.) and Sen. Tammy Baldwin (D., Wis.). Other sponsors include Rep. Mark Pocan (D., Wis.) and Pramila Jayapal (D. Wash.).