Jul 18, 2008

Union targets tax practices

Protest of private equity firm elicits strong police presence

By Banks Albach / Daily News Staff Writer

Roughly 200 union members converged Thursday on Sand Hill Road in Menlo Park, sparking a minor showdown with authorities and securing a brief meeting with a spokesman with Kohlberg, Kravis, Roberts & Co., the private equity firm they were protesting.

The Service Employees International Union organized the rally to protest what it claims are unfair federal loopholes that allow firms to avoid paying taxes on business transactions. Other protests happened simultaneously in Manhattan and Chicago.

In front of the private equity firm's headquarters on the 2800 block of Sand Hill Road, the protesters gathered with bullhorns and signs declaring "End KKR Greed." A handful of union officials spoke at a podium and linked the profits made from the tax loopholes to the troubled economy and the state's $15 billion deficit.

The firm is well-known for its hostile takeovers, such as the buyout of Toys 'R' Us, Safeway and RJR Nabisco for $31 billion in 1989, which inspired the bestseller "Barbarians at the Gate."

Kristy Sermersheim, president of SEIU Local 521, which represents parts of San Mateo County, said the firm pays a much lower tax rate than the average worker.

"We want them to pay their fair share," she told the crowd.

KKR declined to field questions from the Daily News.

After a handful of speeches, the protesters began chanting, bouncing signs and heading toward the driveway leading to the firm's front door. They made it about 30 feet before Menlo Park police stopped them peacefully, since KKR is located on private property.

At about 3:45 p.m., after roughly 20 minutes of haggling between union officials and police, a spokesman agreed to meet with the union. That decision coincided with the arrival of about 20 extra police cars, including from the California Highway Patrol and the San Mateo County Sheriff's Office.

Although some officers were wearing helmets and wielding batons, the situation ended without confrontation after the spokesman walked down the driveway and met with Sermersheim. He nodded silently to criticisms of the firm and asked whether there was "anything else" before accepting an oversized check for $1 billion, the amount the union claims the firm should have paid in taxes.

After the rally, SEIU field organizer Jono Shaffer explained the premise of "carried interest," one of the main loopholes that KKR uses. If a pension system invests part of its employee portfolio in the firm, for example, KKR earns 2 percent for managing that money, but only pays capital gains tax, or 15 percent, instead of the normal income tax.

Also, when a private equity firm buys a company and sells it, some of the initial purchase price might come from outside investors, while a larger chunk will probably be borrowed by the firm. After the resale of the company, Shaffer explained, the firm keeps 20 percent of the profit and pays capital gains taxes rather than income taxes.

"We're saying," Shaffer said, "that should all be considered income."



E-mail Banks Albach at balbach@dailynewsgroup.com.