Update: The amendment discussed in the story below did not make it into the final version of the tax reform bill the Senate passed at 2 a.m. Saturday morning by a vote of 51-49. The amendment, which would have created new benefits for large private equity and hedge funds, was one of a series of last minute changes made to the nearly 500-page bill Friday evening, changes that included handwritten additions and substractions.

Republican Sen. John Cornyn of Texas introduced changes to the tax bill on Friday that would have created a 23 percent deduction for income from pass through partnerships (PTPs), a type of business structure often used by large, publicly traded hedge funds and private equity groups. But the final legislation passed Saturday morning limited the deduction to oil and gas PTPs. So while the Senate tax bill does contain new benefits for oil and gas companies, many of which are headquartered in Cornyn's home state of Texas, private equity groups like Stephen Schwarzman's Blackstone will not be able to take the deduction.

Original Story:

Just weeks before the election last year, billionaire Stephen Schwarzman gave $2.57 million to the Senate Leadership Fund, a super PAC that supports Republican Senate candidates. Now he’s poised to see a huge return on that investment.

The Senate seemed ready to pass the largest overhaul of the nation’s tax code in a generation Friday, in spite of the fact many senators still seemed unclear what was in the bill. Lawmakers have been tacking on last minute amendments, and as a leading tax policy expert pointed out on Twitter, one of those amendments would be a huge boon for hedge funds and private equity managers — including Schwarzman.

University of San Diego tax professor Victor Fleischer first brought public attention to the carried interest tax loophole. The loophole benefits hedge fund and private equity managers, who are compensated through management fees, usually 2 percent of the money they manage, and a cut, traditionally 20 percent, of the profits they generate. The carried interest loophole allows those managers to claim the latter part of their compensation as long term capital gains, which are taxed at 20 percent, instead of income, which is taxed at 39.6 percent. Then-candidate Donald Trump decried the use of carried interest last year, claiming hedge fund managers used the loophole to get “away with murder.” On Friday, Fleischer, who joined the Senate Finance Committee’s Democratic staff last year, highlighted Senate amendment 1715, which was introduced by Sen. John Cornyn, R-TX.

According to Fleischer, not only does the tax bill allow private equity and hedge fund managers to keep their 20 percent tax rate on the profits they generate, this new amendment allows them to claim a 23 percent deduction on management fees — the part of their earnings that is currently taxed according to their income bracket.

Sen. Ron Johnson said Friday Senate Republicans had agreed to raise the deduction for pass-through businesses from 17.4 percent to 23 percent. The Cornyn amendment would make income from pass through partnerships, a type of business structure used by publicly traded private equity firms like Blackstone, eligible for that deduction.

One of the beneficiaries of the new provision would be Schwarzman, chairman and CEO of The Blackstone Group, the largest private equity firm in the world. Schwarzman chaired Trump’s Strategic and Policy Forum, an advisory group of business leaders that disbanded after Trump’s comments following the now infamous August hate rally in Charlottesville, Virginia.

In October 2016, Schwarzman made two donations totaling more than $2.5 million to the Senate Leadership Fund, which is led by the former chief of staff to Sen. Mitch McConnell, R-KY. The Fund spent millions on ads opposing Democratic candidates in tight races in the final days of last year's election. That spending spree included $2.2 million in ad buys opposing former Wisconsin Senator Russ Feingold, who lost to Sen. Ron Johnson by less than four percentage points, in the race's final 10 days.

It also includes $750,000 worth of ads opposing Missouri Democratic Senate candidate Jason Kander, who eventually lost to Republican Roy Blount by less than three points, and $800,000 worth of ad buys opposing Pennsylvania Senate hopeful Kathy McGinty, who would lose her race to Sen. Pat Toomey by 1.5 percent of the vote. All of that spending was in the final ten days of election cycle, and all three of the victors in those races have said they are voting for the Republican tax bill, which is expected to pass by a narrow margin.