Lobbyists help delay closing of tax loophole
WASHINGTON — In the span of a mere 11 days this month, $1 billion in future federal tax payments vanished.
As congressional leaders were hastily braiding together a tax and spending bill of more than 2,000 pages, lobbyists swooped in to add 54 words that temporarily preserved a loophole sought by the hotel, restaurant and gambling industries, along with billionaire Wall Street investors, that allowed them to put real estate in trusts and avoid taxes.
They won key support from the top Senate Democrat, Harry Reid of Nevada, who responded to appeals from executives from casino companies, politically powerful players and huge employers in his state. And the lobbyists even helped draft the crucial language.
The small changes, and the enormous windfall they generated, show the power of connected corporate lobbyists to alter a huge bill that is being put together with little time for lawmakers to consider. Throughout the legislation, there were thousands of other add-ons and hard to decipher tax changes.
Donations from companies
Some executives at companies with the most at stake are also big campaign donors. For example, the family of David Bonderman, a co-founder of TPG Capital, has donated $1.2 million since 2014 to the Senate Majority PAC, a campaign fund with close ties to Reid and other Senate Democrats. TPG Capital has large holdings in Caesars Entertainment and helps run a Texas-based energy company, both of which stand to benefit from the last-minute change.
“For Sen. Reid, it was important, as he represents Nevada, to help the large employers in his state,” said Kristen Orthman, a spokeswoman for Reid. She noted that Caesars, MGM Resorts International and Boyd Gaming, all Nevada companies, could benefit.
A spokesman for Bonderman said he had played no direct role in pushing the cause, but did not dispute that his company was involved in the discussions with congressional staff members.
Both Orthman and the spokesman for Bonderman said it would be wrong to presume his contributions to Reid had played any role in the help his companies received.
The real estate provision, released on Dec. 7, is intended to close a loophole in federal law that has allowed casinos, hotels, restaurant chains and other businesses to raise billions of dollars in cash by spinning off the buildings they own into a separate real estate investment trust in a taxfree transaction.
Since 2010, this type of deal had been used at least 15 times, raising $21.7 billion in returns, according to data collected by FactSet. Rep. Kevin Brady, R-Texas, and chairman of the House Ways and Means Committee, and others wanted to cut it off.
The proposal, document stamped 9:18 p.m. on Dec. 7, set off alarms in the world of Wall Street executives and private equity firms. Companies like Caesars, MGM Resorts International, Hilton Worldwide and the Dallasbased Energy Future Holdings Corp. wanted to preserve the option to take advantage of the loophole on transactions they were already planning.
Lobbyists were mobilized, including David Lugar, who is a son of former Sen. Richard Lugar of Indiana and represents Hilton, and the lobbying firm run by Norman Brownstein, whose clients include Apollo Global Management, Caesars Entertainment and the National Association of Real Estate Investment Trusts, all of which were either still trying to do such tax-free spinoffs or represent the industry.
The class of companies whose fate was in play was relatively limited, so the lobbyists involved teamed up, holding a series of conference calls and devising a “fix.” They even came up with a draft of the proposed language that could be inserted into the tax bill, two lobbyists involved in the effort said, asking that they not be identified because they were not authorized to discuss confidential negotiations.
Reid played a central role in getting the change made, participants in the process said. But the industry executives and their financial backers enlisted other lawmakers as well.
“They have someone in just about everyone’s district,” a lobbyist involved in the push said. “These people had a lot of political capital.”
New clause makes deadline
Confirmation came at a few minutes before midnight on Tuesday, when the revised tax plan was released. It contained a new clause, granting companies that had already asked the Internal Revenue Service for its consent to do a tax-free spinoff the permission to go ahead, precisely the kind of language that the companies had pushed, one of the lobbyists involved said.
Other words were sliced from the package that would have blocked certain types of property transfers to real estate investment subsidiaries, as MGM Resorts is planning to do with seven of its Las Vegas resorts, making it easier for the company to move ahead.
These and other changes related to real estate trusts meant that the tax deal would be $1.06 billion more expensive to the federal government over the coming decade. Brady, in an interview Friday after the House passed the legislation, said the compromise ultimately made sense.
“We just weren’t interested, I think on both sides of the aisle, in disrupting transactions, mid-transaction,” Brady said as he emerged from the House chamber after voting on the legislation.