Key Takeaways
- • ProPublica profiles David Rubenstein, co-founder of private-equity firm Carlyle Group and an estimated $2.6 billion net worth, as a "patriotic philanthropist" whose giving has cultivated goodwill while he has quietly fought to protect the carried-interest tax treatment that benefits private equity.
- • Rubenstein gave the funds to repair the Washington Monument after the August 23, 2011 earthquake, following Congress's appropriation of half of the $15 million repair cost on the condition that the remainder be privately raised.
- • Private-equity firms have benefited substantially from the carried-interest tax break, which taxes manager profit shares at the 15 percent long-term capital gains rate rather than the 35 percent top ordinary-income rate, and the loophole has survived repeated reform efforts.
- • The carried-interest debate became a campaign issue in 2016, with Democrats and Republicans including Sanders, Clinton, Trump, and Jeb Bush criticizing the provision.
- • Rubenstein's career traces to Washington political access: he co-founded Carlyle in 1987 after a 1981 pivot from law, and his early Alaska Native tax-loss business with Stephen Norris drew on the same model.
Summary
This ProPublica profile, published March 7, 2016, examines how David Rubenstein has combined high-profile philanthropy with a long-standing defense of the carried-interest tax provision that has benefited his firm's business model. Rubenstein, whose estimated net worth is $2.6 billion, is one of Washington's most prominent benefactors. According to the article, he funded the $15 million needed to repair the Washington Monument after a magnitude-5.8 earthquake on August 23, 2011, which fractured two dozen stone protrusions at the obelisk's peak. He has also spent $21.3 million on a copy of the Magna Carta, financed a $13.5 million gallery to house it at the National Archives, and made gifts to Monticello, Montpelier, Robert E. Lee's mansion, the Iwo Jima Memorial, and the Lincoln Memorial. The article notes that more than half of his several hundred million dollars in giving fits a "patriotic" theme.
The article contrasts this public image with Rubenstein's financial interest in carried interest. The provision lets private-equity managers treat their share of profits as capital gains, taxed at 15 percent for most of the past fifteen years rather than the 35 percent top ordinary-income rate. ProPublica reports that private equity has posted record profits since the recession and that at least eighteen private-equity executives are estimated to be worth $2 billion or more. Rubenstein has been quoted at a 2013 Credit Suisse forum saying that carried interest "is really what the business has historically been about," and that it is how Carlyle grew its business. The article notes that hedge funds benefit far less because their trades are typically too short-term to qualify.
The loophole has drawn bipartisan attention in the 2016 campaign. Barack Obama pledged reform in his first campaign and attacked Mitt Romney over his Bain Capital tenure in 2012. Bernie Sanders, Hillary Clinton, and Donald Trump have all criticized the provision, and Jeb Bush called for closing it. Private-equity partners argue the treatment is justified by the tradition of risky business partnerships, and the article reports that the provision has survived every reform effort since the 2008 financial collapse.
The profile also traces Rubenstein's background: a Baltimore upbringing, service on Jimmy Carter's campaign and White House staff, and a 1981 move from law into deal-making. He co-founded Carlyle in 1987, building the firm on political relationships that Michael Lewis later described as "access capitalism." Earlier, Rubenstein and Stephen Norris ran a business brokering the transfer of Alaska Native corporations' tax losses, earning at least $10 million in fees in a single year, until Congress closed that loophole in 1987.
The article contrasts this public image with Rubenstein's financial interest in carried interest. The provision lets private-equity managers treat their share of profits as capital gains, taxed at 15 percent for most of the past fifteen years rather than the 35 percent top ordinary-income rate. ProPublica reports that private equity has posted record profits since the recession and that at least eighteen private-equity executives are estimated to be worth $2 billion or more. Rubenstein has been quoted at a 2013 Credit Suisse forum saying that carried interest "is really what the business has historically been about," and that it is how Carlyle grew its business. The article notes that hedge funds benefit far less because their trades are typically too short-term to qualify.
The loophole has drawn bipartisan attention in the 2016 campaign. Barack Obama pledged reform in his first campaign and attacked Mitt Romney over his Bain Capital tenure in 2012. Bernie Sanders, Hillary Clinton, and Donald Trump have all criticized the provision, and Jeb Bush called for closing it. Private-equity partners argue the treatment is justified by the tradition of risky business partnerships, and the article reports that the provision has survived every reform effort since the 2008 financial collapse.
The profile also traces Rubenstein's background: a Baltimore upbringing, service on Jimmy Carter's campaign and White House staff, and a 1981 move from law into deal-making. He co-founded Carlyle in 1987, building the firm on political relationships that Michael Lewis later described as "access capitalism." Earlier, Rubenstein and Stephen Norris ran a business brokering the transfer of Alaska Native corporations' tax losses, earning at least $10 million in fees in a single year, until Congress closed that loophole in 1987.
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