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Photo by Fortune Live Media/ CC BY-NC-ND 2.0

Reprinted with permission from ProPublica

In late November 2017, Senate Republicans were racing to secure the votes for their sweeping tax overhaul. With no Democrats supporting the bill and even some Republicans wavering, Sen. Susan Collins, the Maine Republican, found herself with enormous leverage.

The day before the vote, she offered an amendment to make the legislation, which lavished tax cuts on corporations and the wealthy, more equitable. It expanded a tax credit to make child care more affordable. To pay for it, she took aim at a tax break cherished by the private equity industry.


Then Collins backed down. The day after she introduced it, as the Senate voted on the bill, a Republican Senate aide told a Treasury Department official that Collins was “no longer offering her amendment," according to emails obtained by ProPublica through a Freedom of Information Act lawsuit. Her retreat was a significant victory for Senate Majority Leader Mitch McConnell. Collins put aside her opposition and voted for the bill, which passed 51-49.

Her turnabout has been one of the mysteries surrounding the $1.5 trillion tax bill, which slashed the corporate rate. The new emails and interviews shed light on how quickly Collins climbed down from her amendment proposal and how the industry maneuvered to preserve the break in the new law, which remains President Donald Trump's most important legislative achievement.

Nearly three years later, Collins is facing a tough reelection battle and the private equity industry has become her most reliable source of donations. She has gotten more than half a million dollars in campaign contributions from the private equity industry this cycle, more than any other senator, according to the Center for Responsive Politics, which tracks political donations.

What's more, Steve Schwarzman, the billionaire chairman and chief executive of the private equity giant Blackstone, has given $2 million to a super PAC backing her. (Schwarzman, a major Republican donor, has also given $20 million to a super PAC supporting Collins and other Republican Senate candidates.) The failure of Collins' amendment likely saved Schwarzman alone tens of millions of dollars in taxes, according to tax experts.

Annie Clark, a Collins campaign spokeswoman, said Collins secured other significant changes to the bill. The amendment cutting carried interest stood no chance because it would've required 60 votes to pass if the Senate had voted on it, she said.

“Given the opposition to the amendment at the time — not only from Republicans, but from Democrats as well — it would certainly have failed," Clark said in a statement.

A Schwarzman spokeswoman said in a statement, “Steve has long supported Senator Collins because of her independence, hard work and integrity. He does not closely follow all of her specific policy positions."

The carried interest loophole, as its critics, including Collins, have called it, has long been the target of reform efforts.

The tax break is especially lucrative for the private equity industry, which invests in non-public businesses. A major way that executives at private equity firms like Blackstone make money is by taking a share of profits when the companies they invest in are sold.

The debate over carried interest centers on how this money should be taxed: as an investment return for private equity executives or a bonus that the firm's clients pay for good performance. Today, it's treated like an investment and taxed at a lower capital gains rate. If it were counted as a bonus, it would be taxed like part of the executives' salaries, at the higher ordinary income tax rate. That discount — currently around 20 percentage points — in what Wall Street executives owe to the government quickly adds up to tens of billions of dollars.

When Trump became president and Republicans started pursuing an overhaul of the tax code, private equity had reason to be worried. The party had a long wish list of tax cuts but a limited number of ways to pay for them without increasing the deficit by more than Senate rules allowed, $1.5 trillion over 10 years. Eliminating carried interest, as Trump had proposed, was one of them.

And the tax break had faced years of opposition. The Obama administration made an ultimately unsuccessful attempt to raise the carried interest tax rate, an effort that Schwarzman famously compared to the Nazis invading Poland. (He later apologized for the analogy.)

Trump himself repeatedly complained about carried interest during his presidential campaign. “These are guys that shift paper around and they get lucky," he said in 2015. “They are paper-pushers. They make a fortune. They pay no tax. It's ridiculous, OK?"

To blunt the effort, the American Investment Council, the industry's Washington trade group, proposed a concession it hoped would mollify lawmakers who might consider killing the loophole. AIC pitched House Republicans on modestly extending the amount of time that hedge funds, private equity firms and others must hold onto investments to qualify for the tax break, according to three people familiar with the matter.

That's exactly what happened. Rep. Kevin Brady, R-Texas, the chairman of the House Ways and Means Committee, proposed tweaking carried interest rather than eliminating it. The holding period would change from one year to three years — a change that tax experts say does little to close the loophole.

“It's laughable. Almost nobody will end up paying any additional tax. Tax planners have a million ways to Sunday to try to avoid it, some more legitimate than others, and the IRS is notoriously inept at auditing these types of issues," said Gregg Polsky, a former corporate tax lawyer who is now a professor at University of Georgia law school.

But the loophole still faced a threat. AIC had identified Collins as a senator who might come after carried interest, according to two people familiar with the matter, and on Nov. 30, Collins spoke on the Senate floor to pitch a handful of amendments to the bill.

One priority, she said, was to alleviate the burden on poor families of the costs of care for children or elderly relatives. And to raise money for this new government subsidy, she would roll back Wall Street's carried interest tax break.

“These are the lowest income families who need help the most in paying for child care or care for a dependent, elderly parent or grandparent or other relative; yet virtually none of them qualify for the credit," Collins said. “To pay for making the child and adult dependent care credit refundable, my amendment would close the carried interest loophole, a tax reform that the president has endorsed."

Collins' staff had reached out to academics who specialize in the arcane details of carried interest to help them craft the legislative language, according to one Senate tax aide. She settled on upping the holding period from three years, as Brady has proposed, to eight — which, experts say, would have significantly eroded the tax break's value.

As the Senate was moving toward passing the bill the day after Collins pitched her amendment, Drew Maloney, the Treasury Department's assistant secretary for legislative affairs, emailed the chief of staff to Sen. Rob Portman, R-Ohio, asking what had “happened with carried interest."

“Collins no longer offering her amendment," replied Portman's chief of staff, Mark Isakowitz.

Collins “[c]ame up with a different pay for to fund her medical expense deduction so she isn't offering it any more," Isakowitz continued.

It's unclear exactly what Isakowitz meant; he appears to have conflated Collins' amendment to expand the child and dependent tax credit — for which closing the carried interest loophole was a “pay for," Washington jargon for a revenue-generating measure that offsets a tax cut — with another amendment she proposed retaining a tax deduction for medical expenses and lowering the income threshold necessary to claim it.

Maloney declined to comment. So did Isakowitz, who now runs Google's Washington office.

It's not clear exactly why Collins dropped her last-minute, long-shot attempt to kill carried interest. Three other amendments that Collins introduced on the same day made it into the bill, including an expansion of the medical expense tax deduction and preserving taxpayers' ability to deduct up to $10,000 in state and local income taxes from their federal tax returns.

Clark, Collins' spokeswoman, said the senator continues to support closing the carried interest loophole to pay for an expansion of the child and dependent care tax credit, but the lack of support for it at the time meant the amendment “had absolutely no chance" of making it into the bill.

“Any claim that Senator Collins didn't pursue this amendment because of any lobbying effort is completely false," she said. “Anyone who knows her knows that she always does what she thinks is right. Any insinuation to the contrary is false — and an insult to her integrity."

Maloney, who, internal Treasury emails show, kept close tabs on the carried interest issue throughout 2017, left the administration six months after the tax overhaul passed to take a job running the American Investment Council, the private equity trade group. He later hired Brad Bailey, another top Treasury Department official, to work as one of the trade group's lobbyists.

Another Treasury Department official, Jared Sawyer, has lobbied for AIC since leaving the administration to take a job at a lobbying firm. And Eli Miller, the chief of staff to Treasury Secretary Steve Mnuchin, who was deeply involved in the tax overhaul, left government last year to become a government relations executive at Blackstone.

While Collins' Democratic opponent, Sara Gideon, has outraised Collins' campaign, Wall Street billionaires have stepped up to boost the pro-Collins 1820 PAC, which can accept unlimited donations and has spent heavily on TV and other ads. Schwarzman is the group's single-largest donor. Behind him is Ken Griffin of Chicago hedge fund giant Citadel, who has chipped in $1.5 million.

Citadel's lobbying disclosures show the firm lobbied Congress on the carried interest issue in 2017, as well as the broader tax bill. A Citadel spokesman pointed to Griffin's comments several years ago on carried interest.

“Almost all the income that we generate is short term in nature," Griffin said in 2013. “So my tax rate is pretty much the highest federal marginal rate. So I don't have a lot of skin in the game on this issue from my personal vantage point but I have an interest in this as a matter of principle."

Griffin then said he believed the current favorable tax treatment of carried interest should be maintained.

Gideon has no similar outside group supporting her and her campaign has received $242,000 in donations from people who work in private equity, according to the Center for Responsive Politics. A narrow favorite in the race, Gideon has attacked Collins for her support of the tax overhaul.

In December 2017, when it became clear that, despite the president's promises, the tax bill would not meaningfully address carried interest, Axios' Mike Allen asked Gary Cohn, the director of Trump's National Economic Council, what he would change about the bill if he could change one thing.

“We would've cut carried interest," he replied. “We hit opposition in that big white building with the dome at the other end of Pennsylvania Avenue every time we tried."

When Allen pressed Cohn to explain what had happened, he alluded to the power that hedge funds, private equity and venture capital wield in Washington. “Look, the reality of this town is that constituency has a very large presence in the House and the Senate, and they have really strong relationships on both sides of the aisle," he said.

Now the industry is preparing to fight the same battle again. Joe Biden has proposed raising capital gains taxes for those who make at least $1 million a year to equal the income tax rate, effectively eliminating the carried interest loophole for the richest Americans.

Biden's plan to kill carried interest does not appear to have dented his support from private equity.

Jon Gray, Blackstone's president, hosted a fundraiser for Biden in July and introduced him at another one earlier this year. Tony James, another top Blackstone executive, hosted one in June. (Gray and James have also given a combined $2.25 million to the Senate Majority PAC, which supports Democratic Senate candidates including Gideon.) And Alex Katz, a former aide to Senate Minority Leader Chuck Schumer who now works in government relations for Blackstone, is raising money for Biden's transition effort.

The Biden campaign declined to comment.

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The Arizona 2020 election "audit" under way

Screenshot from azaudit.org

As ongoing threats by Trump loyalists to subvert elections have dominated the political news, other Republicans in two key states—Florida and Arizona—are taking what could be important steps to provide voters with unprecedented evidence of who won their most close and controversial elections.

In both battleground states, in differing contexts, Republicans are lifting the curtain on the data sets and procedures that accompany key stages of vetting voters, certifying their ballots, and counting votes. Whether 2020’s election-denying partisans will pay attention to the factual baselines is another matter. But the election records and explanations of their use offer a forward-looking road map for confronting the falsehoods that undermine election results, administrators, and technologies.

In Republican-run Florida, the state is finalizing rules to recount votes by incorporating digital images of every paper ballot. The images, together with the paper ballots, create a searchable library to quickly tally votes and identify sloppily marked ballots. Questionable ballots could then be retrieved and examined in public by counting boards to resolve the voter’s intent.

“The technology is so promising that it would provide the hard evidence to individuals who want to find the truth,” said Ion Sancho, former supervisor of elections in Leon County, where Tallahassee is located, who was among those on a January 4 conference call workshop led by the Division of Elections seeking comments on the draft rule and procedures manual revisions.

Under the new recount process, a voter’s paper ballot would be immediately rescanned by an independent second counting system—separate from what each county uses to tally votes. The first digital file produced in that tabulation process, an image of every side of every ballot card, would then be analyzed by software that identifies sloppy ink marks as it counts votes. Several Florida counties pioneered this image-based analysis, a version of which is used by the state of Maryland to double-check its results before certifying its election winners.

“The fact that it has overcome opposition from the supervisors of elections is telling because the number one problem with the [elected county] supervisors is [acquiring and learning to use] new technology; it’s more work to do,” Sancho said. “The new technology doesn’t cost much in this case. Everyone has scanners in their offices already because every voter registration form by law must be scanned and sent to the Division of Elections.”

The appeal of using ballot images, apart from the administrative efficiencies of a searchable library of ballots and votes, is that the images allow non-technical people to “see” voters’ intent, which builds trust in the process and results, said Larry Moore, the founder and former CEO of the Clear Ballot Group, whose federally certified technology would be used in Florida recounts.

But Florida’s likely incorporation of ballot images into its recount procedures, while a step forward for transparency, is unfolding in a fraught context. In 2021, its GOP-majority state legislature passed election laws that are seen as winnowing voters and rolling back voting options. In other words, it may be offering more transparency at the finish line but is also limiting participation upstream.

The new recount rule is expected to be in place by this spring, months before Florida’s 2022 primaries and midterm elections. Among the issues to be worked out are when campaign and political party officials and the public would observe the new process, because the election administrators do not want partisans to intentionally disrupt the rescanning process. These concerns were raised by participants and observers on the teleconference.

The Arizona Template


In Arizona, Maricopa County issued a report on January 5, “Correcting the Record: Maricopa County’s In-Depth Analysis of the Senate Inquiry.” The report is its most substantive refutation of virtually all of the stolen election accusations put forth by Trump loyalists who spent months investigating the state's presidential election.

Beyond the references to the dozens of stolen election accusations put forth by pro-Trump contractors hired by the Arizona Senate’s Republicans, the report offered an unprecedented road map to understanding how elections are run by explaining the procedures and data sets involved at key stages.

The report explained how Maricopa County, the nation’s second biggest election jurisdiction (after Los Angeles County) with 2.6 million registered voters, verified that its voters and ballots were legal. It also explained key cybersecurity features, such as the correct—and incorrect—way to read computer logs that prove that its central vote-counting system was never compromised online, as Trump supporters had claimed in Arizona (and Michigan).

“I’ve never seen a single report putting all of this in one place,” said John Brakey, an Arizona-based election transparency activist, who has sued Maricopa County in the past and routinely files public records requests of election data. “Usually, it takes years to understand all this.”

Taken together, Florida’s expansion of recounts to include using digital ballot images, and Maricopa County’s compilation of the data and procedures to vet voters, ballots, and vote counts, reveal that there is more evidence than ever available to confirm and legitimize election participants and results.

For example, Maricopa County’s investigation found that of the 2,089,563 ballots cast in its 2020 general election, one batch of 50 ballots was counted twice, and that there were “37 instances where a voter may have unlawfully cast multiple ballots”—most likely a spouse’s ballot after the voter had died. Neither lapse affected any election result.

“We found fewer than 100 potentially questionable ballots cast out of 2.1 million,” the report said. “This is the very definition of exceptionally rare.”

When Maricopa County explained how it had accounted for all but 37 out of 2.1 million voters, it noted that the same data sets used to account for virtually every voter were also used by the political parties to get out the vote. Thus, the report’s discussion of these data sets—voter rolls and the list of people who voted—offered a template to debunk voter fraud allegations. This accusation has been a pillar of Trump’s false claims and is a longtime cliché among the far right.

It is significant that this methodology, indeed the full report, was produced under Maricopa County Recorder Stephen Richer, a conservative Republican who has repeatedly said that he had voted for Trump, and was fully endorsed by Maricopa County’s Board of Supervisors, which has a GOP majority and held a special hearing on January 5 to review the findings.

In other words, the report is not just a rebuttal for the Arizona Senate Republican conspiracy-laced post-2020 review. It is a road map for anyone who wants to know how modern elections are run and how to debunk disinformation, including conspiracy theories involving alleged hacking in cyberspace.

“There is not a single accurate claim contained in [Arizona Senate cybersecurity subcontractor] CyFIR’s analysis of Maricopa County’s tabulation equipment and EMS [election management system],” the reportsaid, referring to accusations that counts were altered. “This includes the allegation that county staff intentionally deleted election files and logs, which is not true.”

When you add to Maricopa County’s template the introduction of a second independent scan of every paper ballot in future Florida recounts, what emerges are concrete steps for verifying results coming from Republicans who understand how elections work and can be held accountable.

Of course, these evidence trails only matter if voters or political parties want to know the truth, as opposed to following an ex-president whose political revival is based on lying about elections. However, more moderate Republicans seem to be recognizing that Trump’s stolen election rhetoric is likely to erode their base’s turnout in 2022, as Trump keeps saying that their votes don’t matter.

“You’ve got Republican buy-in,” said Florida’s Sancho, speaking of his GOP-ruled state’s embrace of more transparent and detailed recounts. “And Republicans, more than anyone else, should be concerned about whether their votes were counted as cast and as the voter intended.”

Steven Rosenfeld is the editor and chief correspondent of Voting Booth, a project of the Independent Media Institute. He has reported for National Public Radio, Marketplace, and Christian Science Monitor Radio, as well as a wide range of progressive publications including Salon, AlterNet, The American Prospect, and many others.

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Michael Carvajal

Photo by Tom Williams via Reuters

The search is on for a new director of the federal Bureau of Prisons after Michael Carvajal announced on January 5 that he’s retiring from his appointed post and will leave when the Department of Justice finds his replacement.

The Biden Administration needs to replace Carvajal with a person who knows prisons inside and out: someone who’s been incarcerated before.

When President Joe Biden announced his first round of cabinet picks just weeks after being elected in 2020, then Vice President-elect Kamala Harris said: “When Joe asked me to be his running mate, he told me about his commitment to making sure we selected a cabinet that looks like America – that reflects the very best of our nation.

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