David Rubenstein Says Tax Reform Won’t Happen Anytime Soon

The Carlyle Group CEO took to the stage at SALT to discuss tax legislation, dry powder, income inequality, and the Russia investigation.


David Rubenstein, co-founder and chief executive of the Carlyle Group, predicts that President Trump will not be able to get tax legislation passed in the near term owing to a lack of full Senate support and the unlikeliness that lawmakers will be able to resort to a standard procedure for passing contentious legislation.

“The thing most of us have thought about is tax legislation. All of us have been focused on that for quite some time. I don’t think it’s going to happen any time soon,” said Rubenstein, speaking at the SkyBridge Alternatives Conference in Las Vegas.

Rubenstein said tax legislation is unlikely to be passed in the Senate due to a potential filibuster from the Democrats.

“There’s no way to pass tax legislation in the Senate with Republican votes only. The only way you can do it is through budget reconciliation,” he said, explaining that this is how the Affordable Care Act, known as Obamacare, was passed. Budget reconciliation bills are not subject to filibuster.

But Rubeinstein says even this is unlikely, because he doesn’t see Congress agreeing to a fiscal year 2018 budget in the near future.

“We haven’t had a real budget agreement of any consequence for some time — if you have no budget for FY18, you have nothing to attach a budget reconciliation bill to,” he said. And even if a budget is passed, and tax reform gets attached to that, there isn’t enough revenue to pay for it, Rubenstein argued. All the various options being discussed — a border adjustment tax, charging income tax on health insurance benefits offered by private employers, or removing the mortgage-interest deduction — are politically very unpopular.

That leaves dynamic scoring, according to Rubenstein, which includes estimates for how much the legislation will boost economic activity.

“If there is a tax bill of any consequence, it’ll have to rely on dynamic scoring and the assumption that you are going to increase economic activity,” he said.

Passing tax reform has been one of the stated early goals of the Trump administration, along with repealing the Affordable Care Act. After a vote on an early version of a new health care bill was scrapped, Republicans in the house passed a measure earlier this month repealing and replacing the signature legislative achievement of the Obama Administration. But that bill, the American Health Care Act, faces an uphill battle in the Senate.

As part of his campaign rhetoric, President Trump came down hard against the so-called carried interest loophole that allows some private investment fund managers to treat gains on their investments as income tax, rather than capital gains. Rubenstein has lobbied hard against removing the carried interest benefit, which benefits private equity managers and some hedge funds.

Rubenstein didn’t bring up carried interest in his talk, but he tackled the broader issue of income inequality.

“All of us here, if you can afford to come to this conference and afford to come to Las Vegas, you are in the one-tenth of the 1 percent,” he said. “Income inequality in U.S. is growing; income inequality is growing around the world. Eight percent of the people in the world own 85 percent of the assets.” Rubenstein, who has become increasingly active in philanthropy in recent years, said he feels the problem of decreasing social mobility is “a bigger problem” than income inequality and repeated calls he has made in past SALT speeches urging attendees to engage in philanthropy.

He delved briefly into the environment for active investment management, pointing out that private equity managers have $1.4 trillion in dry powder and more money flowing into these funds all the time. Despite headwinds facing active managers, the increased turmoil around the world should benefit alternative investment managers, he said.

“Our industry is flush with a fair amount of cash,” said Rubenstein. “The hedge fund industry is going to have more money coming into it than ever before. I won’t say it’s a golden age for the alternative investment industry, but the alternative industry is likely to be benefiting from a lot of the concerns around the world.”

As for the news that a special prosecutor, Robert Mueller, had been appointed to investigate Trump’s ties to Russia, Rubenstein — a consummate Washington insider — said that in his experience, the investigation will not wrap up tidily any time soon.

“This will go on between six and 12 months, based on history,” he said. “Don’t expect breaking news every second on what’s going to happen. There will be lots of news stories, but nothing dramatic will happen for quite some time.”