Critics Say a Big Philanthropist Indulges in a Double Standard

Peter G. Peterson’s decision to form a foundation that will eventually receive at least $1-billion comes

in the wake of controversy about the way the businessman made his money.

Mr. Peterson served as chairman of Lehman Brothers before becoming head of the Blackstone Group, a private-equity group that he and his business partner, Steven A. Schwarzman, took public last year.

Mr. Peterson’s financial gains came largely because of the tax breaks he and other rich investors have enjoyed.

Managers of hedge funds, such as Mr. Peterson, receive earnings that are taxed as capital gains at 15 percent, while wage earners and other types of wealthy investors pay taxes at a 35-percent rate.

Mr. Peterson has defended the tax break during talks with politicians, earning the wrath of those who say he is indulging in a double standard since his foundation and several books he has written over the past two decades have talked about the need for fiscal conservatism.

“Here’s a guy who advocates for lower federal deficits on the one hand and more tax breaks for hedge-fund managers on the other,” says Jared Bernstein, a senior economist at the Economic Policy Institute, a left-leaning think tank in Washington. “Those loopholes bleed billions of dollars from the federal treasury. It makes him a weird spokesperson for the cause.”

Even so, Mr Bernstein says, “that doesn’t mean he doesn’t have some good arguments.”

Mr. Peterson, a Republican, counters that equity firms like the Blackstone Group create jobs and that more taxation of them would stanch the flow of benefits that its profits pour into the economy.

“We in the private-equity industry have done a terrible job of explaining what private equity really contributes to productivity, competitiveness, and growth in the economy,” says Mr. Peterson. “I have said publicly that I believe we fat cats will have to pay more taxes, but these tax increases should be part of a package of benefit reforms, spending reductions, and restraints.”