Private Equity Firms Tighten Stranglehold on US, Angling for Boons Under Trump

Private equity has a well-deserved reputation as a ruthless industry that specializes in stripping and flipping companies to extract profits for wealthy investors and enrich its own billionaire CEOs. It’s an industry that increasingly dominates our lives. Private equity’s tentacles stretch across nearly every sector, including housing, hospitals, energy, prisons, retail and sports.

With a new corporate-friendly Trump administration, leaders of private equity firms are hoping for tax breaks, weakened regulation and access to trillions in 401(k) savings — all of which could broaden their sector’s reach over our society, increase financial risk for millions, and further supercharge billionaire wealth.

“It’s not only that private equity firms are exploiting the tax code to make themselves billionaires,” Eileen O’Grady, director of programs at Private Equity Stakeholder Project, told Truthout. “They’re also eroding health care, the climate and the quality of jobs across almost every industry.”

At the same time, workers in various sectors are fighting back against private equity’s expanding dominance.

“Legalized Looting”

Private equity firms pool together the money of clients — mostly wealthy individuals and big institutional investors like pension funds and university endowments — into funds they use to take over companies and aggressively restructure them to extract profits. This restructuring involves things like cutting services, laying off workers and stripping assets before eventually selling companies off.

Private equity’s profit model relies heavily on debt. Private equity firms typically acquire companies through “leveraged buyouts” where they finance takeovers — gaining a controlling stake in the targeted company — with loans and add the new debt to those companies’ books. Investors get payouts while the company must service the new debt, adding pressure to cut costs.

“Regardless of what industry they’re investing in, they’re usually trying to double or triple their original investment over a short time period,” said O’Grady. “Because of that, they’re typically laser focused on quickly increasing the cash flow at those companies.” Democratic Sen. Elizabeth Warren of Massachusetts has referred to private equity as “legalized looting.”

Private equity is opaque, largely operating in the less regulated “private” realm of the economy, not the “public” realm that is subject to more transparency and scrutiny. According to a new report, “Private Equity, Public Damage,” co-published by Private Equity Stakeholder Project along with Americans for Financial Reform and Americans for Tax Fairness, private equity firms control around one-fifth of the U.S. economy and around 18,000 companies.

Private equity firms oversee trillions in assets and their top executives are among the richest people in the world. Stephen Schwarzman, the founder of Blackstone, the world’s biggest private equity firm, is worth $50 billion. Private equity barons use philanthropy and campaign donations to maintain influence across society.

Tax Loopholes for Billionaires

One of Wall Street’s goals under the new Trump administration is to preserve special tax rules that boost the wealth of private equity and hedge fund billionaires. The most important — and most egregious — of these is the carried interest loophole.

Private equity firms control around one-fifth of the U.S. economy and around 18,000 companies.

Private equity firms reap billions from charging fees on their clients — usually a 2 percent flat fee on total assets managed plus 20 percent of any investment gains. Those gains, which can be astronomical, qualify as something called “carried interest,” which is only taxed at a top rate of 20 percent, rather than the 37 percent top rate of regular income.

Because of this loophole, private equity barons are taxed significantly less on much of their income than ordinary people. “It means that fund managers are paying almost half of what they should be paying,” said O’Grady.

“Private Equity, Public Damage,” which O’Grady coauthored, shows that four top executives each at the world’s top two private equity firms, Blackstone and KKR, reported a combined carried interest income of nearly $2 billion from 2019 to 2023. Because of the carried interest loophole, they received a combined tax break of $335 million on that income.

“The carried interest tax loophole effectively creates billionaires,” said O’Grady.

The report highlights other ways private equity executives profit from the tax code, such as an “income-misclassification” scheme that involves offering clients a waiver of the 2 percent flat management fee “in exchange for an equivalent share of potential investment profits,” which can be declared as carried interest income and taxed at the lower rate.

Private equity is fighting to preserve these tax breaks as the 2017 Trump tax code expires in 2025. Trump says he wants to eliminate the carried interest loophole, but he said the same thing in 2017 before signing into law a tax code that preserved the loophole. The 2024 Democratic Party platform called for closing the loophole, as have recent Democratic administrations — who were also aided to power by, and maintained close ties to, Wall Street. The carried interest loophole has survived.

Private equity used an army of lobbyists to secure the loophole in 2017. “The industry is probably lobbying the administration very hard, as we speak, to preserve their carried interest loophole,” said O’Grady.

Private equity and hedge fund billionaires like Schwarzman, Ken Griffin, Paul Singer and Nelson Peltz were among the top backers of Donald Trump’s reelection. In 2010, Schwarzman compared President Barack Obama’s support for raising the carried interest tax rate to a Nazi raid. “It’s like when Hitler invaded Poland in 1939,” Schwarzman told a crowd.

Eyes on the 401(k) Prize

Private equity’s wish list under Trump also includes a looser regulatory environment. Trump has appointed a slew of private equity and hedge fund billionaires to top positions in his administration, including as his Treasury and Commerce secretaries.

The Biden administration, especially former Federal Trade Commission Chair Lina Khan, brought more antitrust regulatory scrutiny to mergers and acquisitions, which are central to private equity’s business model. Khan, for example, focused on the well-documented risks in private equity’s takeover of swathes of the health system. Private equity dealmakers were salivating after the election over a friendlier Trump regime.

However, recent decisions from the Trump administration, including its decision to maintain Khan’s merger guidelines, may signal an ongoing antitrust focus — or, at least, an attempt by Trump to centralize and wield more power over mergers.

Private equity is also excited about possibly accessing a massive new clientele that it’s been long denied: the trillions of dollars in tax-deferred defined contribution plans like 401(k) plans.

Organizers, communities and elected officials across the U.S., from San Diego to New York, are pushing back against private equity landlords with tenant unions, and lawsuits and ordinances that protect renters.

The Employee Retirement Income Security Act of 1974 established restrictions that boxed out private equity — with its greater risk, higher fees and lack of transparency — from private employee benefit plans like 401(k)s.

Private equity made some headway in its push into 401(k)s toward the end of the first Trump administration that the Biden administration, despite its rhetoric, upheld. Now private equity is lobbying hard to fully break into the untapped trillions in retirement savings.

Harrison Karlewicz, a Ph.D. candidate in economics at UMass Amherst and coauthor of a recent paper on private financial markets published by the Political Economy Research Institute, told Truthout that private equity’s intrusion into 401(k)s would “collapse” the longstanding boundary erected between the more regulated and more transparent public securities — where most 401(k) investments now lie — and the opaque private realm.

“Everyday working people and their savings could be investing in private capital funds that are more risky and not as regulated as the stock market that we have right now,” said Karlewicz. “The move from pensions into defined contribution plans like 401(k)s was bad, and this next step would potentially deregulate the investment environment for savers even more.”

“It potentially weakens our already crumbling retirement security even further,” said O’Grady.

Even if Congress and Trump legislate laxer rules around retirement savings and private equity, many question whether 401(k) fund managers would actually invest in the industry given the risks. But private equity is hoping Trump swings that door wide open.

Resisting Private Equity

Private equity has come under intense criticism for gobbling up rental housing, including mobile home parks, across the U.S., driving up housing costs while letting conditions deteriorate. Moreover, private equity’s housing takeover has been supported by billions in financing backed by Freddie Mac and Fannie Mae, the government-owned mortgage companies.

Hedge fund billionaires like John Paulson and Bill Ackman, both Trump supporters, are big investors in Freddie and Fannie and have long hoped to see them privatized, a wish Trump may fulfill. Jordan Ash, housing director at Private Equity Stakeholder Project, told Truthout that privatization of Fannie and Freddie could and further erode accountability around housing justice.

“If they go private, then even that minimal responsiveness will be gone,” said Ash. He added that previous scrutiny brought to private equity housing practices by agencies like the Federal Trade Commission and the Consumer Financial Protection Bureau could end with Trump’s appointment of industry-friendly regulators. “There definitely won’t be any role in terms of them reining in private equity corporate landlords,” he said.

Trump selected Bill Pulte, a private equity executive, to be the next director of the Federal Housing Finance Agency, which oversees Fannie and Freddie.

At the same time, bottom-up resistance to private equity has been expanding. Organizers, communities and elected officials across the U.S., from San Diego to New York, are pushing back against private equity landlords with tenant unions and lawsuits and ordinances that protect renters.

Climate advocates have also been mobilizing against private equity firms that remain big investors in dirty fossil fuels. For example, activists have protested against the billionaire David Rubenstein, whose firm, Carlyle Group, is a major oil and gas investor, as well as Global Infrastructure Partners, an investor in the Rio Grande LNG export facility being built in Brownsville, Texas.

Organizers against mass incarceration have also been pushing back against private equity’s takeover of and profiteering from critical aspects of life within prisons, from health care to food services to telecommunications.

Movements against private equity have stretched into workplaces, from bottling plants to nursing homes. One example of labor organizing against private equity bosses highlighted in “Private Equity, Public Damage” involves Video Relay Service (VRS) workers who support communication for the Deaf and hard of hearing. The two main VRS companies, Sorenson Communications and ZP Better Together, are owned by private equity firms.

Meg Huseman, who is profiled in “Private Equity, Public Damage,” did not mince words about the impact of private equity on her industry. “Private equity has decimated Deaf consumers’ access to VRS services and really harmed and exploited interpreters,” she told Truthout.

Huseman says understaffing has become a big problem due to “massive rounds of layoffs” and the replacement of more experienced employees with newer and less experienced ones. Interpreters now have to work longer hours — “to the point of mental and physical exhaustion,” she said — to make ends meet.

VRS services are publicly funded through a small fee on phone bills overseen by the FCC, which had already allowed private equity to cash in before Trump took office again. “FCC oversight has allowed Sorenson and ZP Better Together to monopolize the VRS sector,” she said. “It’s just become so corrupt.”

But Huseman and her coworkers have been pushing back. VRS workers are unionizing with the ASL (American Sign Language) Interpreters Union, which is affiliated with the Office and Professional Employees International Union.

Interpreters want better pay and working conditions, says Huseman, but they also want more respect at work. “I’ve been with Sorenson for almost a decade, and I don’t feel like interpreters have a voice anymore,” she said. “I don’t feel like we have a seat at the table.”

Whether or not private equity gets everything on its wish list under the new Trump administration, the industry will remain a force, led by some of the wealthiest and most powerful executives in the world. With private equity’s reach touching nearly every area of our lives — from homes to hospitals, jobs to jails — the pushback against the industry is inextricably bound up with the larger fight for a more just and egalitarian society.