This battle is part of a larger discussion of, in Henry Manne’s phrase, “the market for corporate control.” The tax code is set to over lever firms, which require increases in earnings to go toward debt payments instead of research and development, expansion, and other things that build the firm. What could we change to generate different outcomes? That’s exactly right. Right after this goes on for a few years, you’ve starved your firm of human and operating capital. Five years later, when the private equity leaves, the company will collapse — you can’t starve a company for that long. This is what the history of private equity shows. What I’d like to see Mitt Romney do is to show an example of a buyout that went well. The only success stories he’s talking about on any level are venture capital investments — Staples and Sports Authority. Personally I like venture capital, I think it provides a lot of value, but that’s not what he did mostly, and that’s not what these takeovers are about. The big fix I’d encourage is an end to interest-tax deducibility for leveraged buyouts. The tax system encourages companies to borrow as much as they can. For certain industries, like telecom, these deductions might make a lot of sense. But it was never intended for financing leveraged buyouts. If you put a cap on this you would find buyouts and private equity firms that were much more focused on building companies. Excellent stuff here.
I copied the last three paragraphs of your link.It really explains things well.
Looks like Mitt is playing fast and lose with the tax code and loading up companies he supposedly is helping with so much debt they fall under their own weight after Bain is through looting them.
You really got to the core of things with this link.Thanks much.