David Rubenstein: Don’t Expect Tax Reform in 2017 #SALT2017

May 18 2017 | 2:39pm ET

While markets have been focused on turmoil in Washington D.C., Rubenstein warned that gridlock and process would likely prevent deals from getting done this year. Here is a recap of his appearance.

David Rubenstein said during the 2017 SALT Conference that healthcare or tax reform were unlikely in 2017.

On the Comey Investigation

Rubenstein also said that regardless of what has been reported about the Trump Administration’s firing of former FBI Director James Comey, an investigation will take the balance of the year to produce any substantial conclusion.

“Nothing will be resolved on what will happen for six to 12 months,” he said.

On Healthcare

“I don’t think it’s likely going to happen at any time soon,” he said.

Rubenstein said that the Affordable Healthcare Act was passed through budget legislation to prevent a filibuster. While it may go through a similar path, there are far fewer Republicans in the majority in 2017 as there were Democrats in their majority in 2017. He says that the new health care bill that recently passed through the House of Representatives is “unlikely to pass.”

On Tax Reform

Rubenstein says that Republicans don’t have the votes in the Senate to prevent a filibuster. More challenging, it will be tough for Congress to produce a “revenue neutral bill” with the type of tax cuts being proposed (cut the corporate rate from 35% to 15%).

He offered a few potential places where the government might try to raise capital. He cited the removal of the health insurance exclusion on benefits provided by employers (as part of compensation). It would likely add $1.3 trillion; however, it would impact "too many people." He also discussed cherished exemptions like charitable, mortgage, and state and local income tax deductions, and concluded that all of them were off the table as potential cuts to raise capital.

The most likely scenario, he said, is that Congress will look at the dynamic scoring of any bill, and hope that tax cuts in the early years produce taxable economic activity in the future.

Rubenstein said that a “best-case” scenario might look to gradually decrease the corporate tax rate from 35% to 25% during a period of years.

Money Trends

Rubenstein said that the private equity world is shifting. Returns have declined from the 20% net average of the 1980s and 1990s to roughly 14% annually. When he founded Carlyle, around 250 private equity firms existed. Today, that figure has ballooned to around 6,000 companies.

Currently, the industry has $1.4 trillion in dry powder and firms are paying 10x to 12x in buyouts.

So why is there so much excess money and why are people putting more money into private equity?

Rubenstein argues that everyone says that the alternatives space is the only real vehicle to obtain double-digit returns. He said that fixed income and public equity couldn't compete, and this will likely be the status quo for the next decade. He fully expects that private equity firms and hedge funds will see more capital inflows in the years ahead.

Giving Back

Rubenstein concluded his remarks with a message to the audience.

“If you can afford to be at this conference, you’re likely in the top one-tenth of the one percent,” he said.

He encouraged attendees to give back to society and quoted John F. Kennedy’s call for Americans to “ask not” of what a country can do for them, but to ask what they can do for their country.


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