Lawmakers weigh in on role of private equity firms in economic recovery

Lawmakers on both sides of the aisle Tuesday said private equity firms have a key role to play in the recovery from the coronavirus recession, but they diverged on the level of government involvement.

Speaking at The Hill’s virtual event on private capital, Reps. Stephanie Murphy (D-Fla.) and Bryan Steil (R-Wis.) both called private equity a driver of growth but saw different roles for the government in regulating the firms.

Murphy and Steil, who both worked in the private sector before coming to Congress and hail from states with significant investment from private equity groups, said the coronavirus recession will motivate private capital firms to examine their investment principles and become more worker-friendly.

But while Murphy, a Blue Dog Democrat, said she wants governmental “guardrails” to protect workers, Steil warned against “heavy-handed” government regulation of these firms.

In particular, Murphy argued the government should be supporting small and medium-sized businesses to keep them from taking on debt during a recession — a strategy used extensively by private equity firms.

To mitigate the risks of debt, Murphy wants to expand the employee retention tax credit instead of having businesses take out loans and potentially accumulate more debt.

A measure sponsored by Murphy, which has bipartisan support, would raise the existing refundable tax credit’s payroll coverage limit from 50 percent to 80 percent and increase the per-employee spending limit from $10,000 to $15,000 per quarter, with a $45,000 yearly cap, in order to keep workers from being laid off so they can retain benefits and health insurance.

“I think we’re going to come out of this COVID experience understanding that we all have a role in ensuring people have access to health care,” Murphy told The Hill’s Steve Clemons at the event sponsored by the American Investment Council. “Benefits shouldn’t be a luxury. I’m hopeful that we come out of this moment, where we are exposing the weaknesses in our system, with a renewed commitment to corporate patriotism and to doing the right thing for our workers and our economy.”

.@RepStephMurphy “This democratic capitalist model that we’ve had in the U.S. has helped us build the greatest nation and the strongest economy in the world.” #TheHillInvests https://t.co/e0uDiNzYJd pic.twitter.com/aUn3SjM5tq

— The Hill Events (@TheHillEvents) July 21, 2020

Responding to criticisms that private equity can exacerbate inequality and saddle companies with debt, Steil said the majority of private equity ventures are well intentioned and provide greater opportunities and wages for workers.

“The more that we have private capital coming to the table to be able to take some of these companies that may be not on the coast, say in Wisconsin or throughout the heartland of the United States, provide that private capital and allow those companies to scale up, that’s a real significant win for workers across the country,” Steil said.

.@RepBryanSteil: “I think there’s a real opportunity to explain that a lot of the private capital that gets injected into our economy is to the great benefit of workers and families all across the United States” #TheHillInvests https://t.co/Duk6Jd27x0 pic.twitter.com/A4h2dVORFG

— The Hill Events (@TheHillEvents) July 21, 2020

Steil, a member of the House Financial Services Subcommittee on Diversity and Inclusion, argued that the role of government is to encourage a competitive landscape and allow private firms the freedom to identify business practices attractive to them. Encouraging the unencumbered growth of private firms will naturally allow for capital to flow to all business, including woman- and minority-owned businesses, and be critical in restoring the nation’s economic health, he said.

“We got punched in the face by coronavirus attacking both our health but also our economy and jobs,” Steil said. “Private capital in particular has really stepped up to the plate in making sure that we get through some of these choppy waters in the short term, ultimately getting folks back to work, and it’s going to be a key component as we rebuild our economy on the other side.”