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Tax policy comes as second nature to investment bankers.  Earlier this month, the Census Bureau  its annual accounting of state government revenues.  It is a survey of all finances related to state government spending. The data allows researchers to address, in a broad way, various debates in the tax policy world.

Among those debates, the most contentious is probably the recent tax cuts in Kansas. Kansas enacted broad-based tax reform in an effort to improve its long-term economic outlook.  Among the major components was reducing the income and corporate income tax rates and eliminating income tax on pass-through entities.

The debate, unsurprisingly, was whether the tax cuts would pay for themselves over time by inducing stronger employment growth. The recently released data provides an initial insight.

Income and Corporate Tax Revenue Across States

The tax change comprises two components.  The first is the revenue side. The following table is a look at how income and corporate income tax revenue has performed by state since 2012, sorted by growth in the tax burden.

Interestingly, and completely unsurprising, income and corporate income tax is down about 13% in Kansas, about 5% below the next closest to the bottom – Delaware (-8%). The revenue decline in the initial years is as expected.  Tax cuts take time to pay back.

Table of Percentage Growth in Income Tax

The next question is – did the tax cuts boost economic growth in Kansas above what happened in other states?

The Employment Picture by State

With the revenue picture looking about as expected, here’s a look at the employment picture.

As a reminder, the crux of the debate, at least according to the way Mr. Brownback sold it, was not whether revenue would go negative in the initial year, but rather that employment growth would be boosted. Here’s the early look.

Fascinatingly, Kansas appears to have experienced a boost in employment growth relative to other states, exactly as Mr. Brownback said it would. The increase is shown by the acceleration in employment (acceleration is the percentage change in the year-over-year growth rate). In Kansas, employment growth accelerated by 31%, much better than most other states.

As mentioned, it’s still early, but the early evidence certainly appears to be in Kansas’ favor – tax cuts are boosting employment growth (it just takes time for the investment to pay off).

Employment Growth
State 2013 (Avg. Y/Y Growth) 2014 (Avg. Y/Y Growth) Acceleration
Wyoming 0.17% 1.19% 587%
Arkansas -0.02% 1.08% 398%
Pennsylvania 0.26% 0.80% 211%
South Dakota 0.84% 1.38% 64%
Kentucky 1.06% 1.59% 50%
New Hampshire 0.85% 1.26% 48%
Georgia 2.06% 3.02% 47%
Oregon 1.92% 2.77% 44%
Alaska 0.35% 0.47% 35%
Nevada 2.58% 3.44% 33%
Vermont 0.78% 1.03% 32%
Kansas 1.16% 1.52% 31%
Tennessee 1.59% 2.08% 30%
Wisconsin 1.02% 1.32% 30%
South Carolina 1.95% 2.52% 29%
Florida 2.51% 3.23% 28%
Indiana 1.23% 1.52% 24%
North Carolina 1.77% 2.11% 19%
Washington 2.37% 2.78% 18%
Alabama 0.93% 1.09% 18%
Illinois 0.95% 1.11% 17%
Nebraska 1.18% 1.34% 14%
North Dakota 3.42% 3.85% 13%
Colorado 2.99% 3.32% 11%
New York 1.52% 1.68% 11%
Ohio 1.25% 1.36% 9%
Maryland 0.86% 0.91% 5%
New Mexico 0.84% 0.86% 3%
Idaho 2.54% 2.61% 3%
Texas 3.01% 3.07% 2%
Louisiana 1.39% 1.41% 1%
Rhode Island 1.30% 1.29% -1%
Delaware 2.21% 2.20% -1%
Iowa 1.29% 1.28% -1%
California 3.22% 3.05% -5%
Massachusetts 1.73% 1.62% -6%
Mississippi 0.81% 0.75% -7%
Connecticut 0.79% 0.73% -7%
Missouri 0.94% 0.86% -8%
Utah 3.23% 2.95% -9%
Michigan 1.87% 1.70% -9%
Oklahoma 1.31% 1.16% -12%
Minnesota 1.70% 1.41% -17%
Arizona 2.34% 1.92% -18%
Maine 0.60% 0.47% -23%
Virginia 0.71% 0.45% -36%
New Jersey 1.16% 0.70% -39%
Hawaii 2.04% 1.07% -47%
Montana 2.01% 1.01% -50%
West Virginia -0.20% -0.38% -289%



Overall, early evidence on the Kansas tax experiment appears generally positive. As anticipated, corporate and individual income tax revenue is down from the prior year.  This occurs because it takes time for tax cuts to work their way through the economy.

At the same time, employment growth in the Sunflower State is accelerating, with employment acceleration the 12th highest among all states in 2014.

It’s still too early to address statistical causation, but early evidence points towards Mr. Brownback’s favor.  His tax cuts are boosting employment growth, with revenue taking some time to pay back on the investment.


As a general rule, private equity professionals pay little attention to demographic shifts. That is, at least, on the surface. But, demographic shifts are certainly set to impact the makeup and nature of the private equity business.

Generation Demographics

As background, here’s a look at the projected population from 2015 to 2050 for the major generations.

The largest group is the Millennial generation, individuals born between 1981 and 2000. Why is the Millennial generation expected to continue to grow when all births classified in this generation are already over?  The answer – immigration. Overall, the Millennial generation is expected to peak in the late 2030s, after which their numbers begin to decline.

A second interesting trend is how soon the Baby Boomer generation will no longer be the top “older” generation. In around 2021, Generation Xers will surpass Baby Boomers as the second largest generation. (Death is anticipated to reduce the Baby Boomer generation to around 25 million by 2050.)

Individuals by Generation (Births + Immigration - Deaths)

Births by Generation

Here’s a look at births by generation.

Besides the ebbs and flows in births, one interesting observation is the drop in births among the Post Millennials.  The drop began in 2008, the first year of the worst recession the world has seen since the Great Depression.

Interestingly, the largest generation for births is the Baby Boomer generation, followed by Millenials.

Births by Generation

What Does This All Mean for Private Equity?

Among the many possible ways demographics could impact the financial world, here are three.

First, with Boomers leaving the labor force comes a shift in expenditure patterns for the richest generation.  This expenditure shift, from saving to cruising and other retiree-type expenditures, may decrease the amount of capital available to private equity.  This is unsurprising given that the Booomer generation has the largest amount of capital in private equity investments.

Second, the pending importance of Generation X is somewhat risky.  If Generation Xers can be as productive as Booomers, then demand for private equity products are likely to continue to increase.  If, on the other hand, Generation Xers are not as productive as Boomers, private equity prospects and funding mix may shift increasingly away from the U.S.

Third, the drop in the birth rate for Post Millennials is likely to affect long-term economic growth.  It’s completely unsurprising that in the United States the fastest growing states are states with the highest birth rates.  Children bring economic growth, including on a per capita basis.  Should the Post Millennials continue to reduce their demand for children, growth opportunities may shift overseas.


Overall, demographic shifts are likely to impact the financial world.

Among the effects are a shift in available capital for private equity investments (all other things equal), a potential shift in productivity with the rise in Generation Xers, and challenges in long-term growth prospects if Post Millenials continue to forgo demand for children.


Pay in the private equity industry is on the rise. As is always the case in a highly competitive, human capital intensive industry, the question is: pay is on the rise for who?

Looking at Some Broad Pay Issues

Consider, for instance, the situation of Blackstone CEO Stephen Schwartzman.  His annual base pay is $350,000, and it hasn’t changed since Blackstone’s initial public offering in 2007.  The tale of flat base salary is quite common in modern day finance, at least among individuals responsible for running financial firms.

What’s more interesting than the flat base salary is the enormous growth in bonus pay. Mr. Schwartzman’s total compensation in 2014, which includes an annual bonus, dividends, and equity incentives, is at about $690 million, and may reach more than $1 billion by the end of the year.  Not bad for a guy who has a base salary of a mere $350,000.

Hollowing Out of the “Middle Class” in Finance?

The story of Mr. Schwartzman is something that’s becoming increasingly commonplace in the financial industry.  Pay is shifting towards incentives, and the individuals benefiting from such a switch are head honchos and young Wall Street talent.

The middle group -well, they might be in trouble.

Pre and Post Crisis Pay

Here’s a look at New York City wages from 2007 to 2014.

As indicated, 2014 post-crisis pay in the Securities sector is still below where it was in 2007, down from $436,792 to $426,149. Interestingly, although not surprising, pay in the “All Other” category is up, from $70,783 to $73,313.

Why is the securities industry lagging, or is it?

New York City wgaes.fw

The answer, according to compensation experts, is that pay in the securities industry is undergoing a transformation. Instead of paying employees a flat annual salary, Wall Street firms are shifting more pay towards cash bonuses, and this shift benefits the higher-ups and the newly hired.

Equity-based Deferred Compensation

In addition to using cash bonuses to attract talent and reward top performers, Wall Street’s top brass also have a greater share of their compensation coming from equity-based deferred compensation.

This equity-based deferred compensation is what makes Mr. Schwartzman so much money as well as other top Wall Street CEOs.  Their six or seven figure salaries can easily shift to 8 or even 9 figures when performance based pay (i.e. equity-based deferred compensation) has value.

Other Shifting

In addition to a shift to cash bonuses and equity-based deferred compensation, Wall Street is also looking for younger talent and talent outside of the New York area.  Wall Street firms are also letting mid-level employees go in an effort to boost profitability.


Perhaps unsurprisingly given the increasing mobility of labor and firms willing to outsource labor to lower cost areas, there’s a growing gap between the lower paid private equity industry employees and the higher level employees.

Part of the shift can be explained by outsourcing and downsizing.  Part of the shift is also due to a shift towards cash bonuses and equity-based deferred compensation.

There is also no indication that the gap will be narrowing any time soon.


Thinking About Early Stage Venture Capital Investments in 2015

April 6, 2015

By most measures, 2014 was a fairly positive year for the private equity industry, in particular early stage private equity (typically known as venture capital). The relatively decent performance of private equity over the past few years has some analysts wondering whether the industry is approaching a business cycle peak. The concern for an industry peak only […]

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How Long Can the Labor Market Keep Accelerating? Hint: It’s a While

March 23, 2015

There has been lots of chatter recently about the strength of the U.S. employment picture. The early March knockout employment report, at +295K net new jobs, seems to have increased the discussion about whether the employment picture is peaking. Is it? How much longer can the labor market keep accelerating? (As a note, acceleration means that the […]

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Is the Tech Industry in a Bubble?

February 23, 2015

Recently, chatter has focused on whether the technology industry is in a bubble.  Is it? Individuals following say, home prices in San Francisco, one might get the impression that it is.  Since bottoming in January 2012 at about $621K, the median home price in the Bay Area is now approaching $1.1 million, a growth of […]

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2015 Chicago Booth Private Equity Conference

February 18, 2015

This Friday is the 14th annual Beecken Petty O’Keefe & Company Private Equity Conference. Each year, the private equity conference focuses on a unique theme through a series of fireside chat and panel sessions with various industry experts. This year, the conference’s theme is “Return Realization: Positioning and Timing the Ideal Exit.” The conference will […]

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A Record Year for Private Equity Buyouts

January 26, 2015

Pitchbook is out with initial estimates on the number of venture capital exits via private equity buyouts in 2014. Perhaps surprisingly, the figures show some incredible strength. Initial estimates put the number of private equity buyouts via venture capital exits at 138, an increase of about 25 percent from 2013. Private equity purchases via venture capital exits […]

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When Will the Oil Price Drop Show Up in the Labor Market?

January 12, 2015

The private equity industry is, surprisingly, closely connected with movements in the oil market. Part of this certainly stems from macroeconomic forces and their effect of the private equity business as a whole. Another part stems from the massive involvement the private equity industry has in putting together deals for the oil and natural gas industry. Given […]

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Some Highlights on Job Search Digest’s Private Equity and Venture Capital 2015 Compensation Report

December 29, 2014

Job Search Digest recently released their 2015 Private Equity and Venture Capital Compensation Report.  In it is a great deal of detail about how firms reacted to the changing market conditions in 2013 and 2014.  Among the various interesting findings, here are three. Job category with Highest Bonus as a Percentage of Total Compensation Of […]

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