NEW YORK (Reuters) - Henry Kravis, the legendary co-chief executive of private equity group KKR & Co LP (KKR.N), said on Tuesday that a reform of the tax system was necessary to jumpstart the U.S. economy.
"A tax system that is going to be conducive and really encourage investment and creation of jobs - that's the only way we are going to get this economy going," Kravis said in an interview with Reuters Editor-in-Chief Stephen Adler at the Thomson Reuters PartnerConnect 2012 conference in New York.
Congress has debated for years whether to do away with a tax break that lets executives of private equity firms and some hedge funds pay the 15 percent capital gains tax on their share of investment profits, the so-called carried interest, rather than the top ordinary income tax of 35 percent.
The issue has been front-and-center in recent months as Republican presidential candidate and former private equity executive Mitt Romney has come under fire for his relatively low personal tax rate. Democrats have often made the carried interest provision in the U.S. tax code a target.
Kravis didn't say what he thought the tax rate on carried interest should be, though the company has said many times that an increase in the tax rate would be negative for the firm and its investors. Instead, Kravis linked the question to the wider tax debate.
"We have to look at the whole tax system, so that means you have to look at everything across all segments there. Carried interest could be part of that clearly, but there are lots of other things that need to be looked at," Kravis said.
On Monday, one of Kravis's peers, David Rubenstein, billionaire co-founder of Carlyle Group LP, defended the lower rate of taxation enjoyed by private equity managers, arguing they are merely following the laws that Congress wrote.
Kravis, whose net worth as of March 2012 was $4 billion according to Forbes, refrained from making a prediction about the future tax treatment of carried interest and said he tried to keep his firm out of politics.
"What we need, whether it is President Obama, who was handed a tough situation in the middle of a downturn and who is doing what he can to turn it around, or whether it is Romney who is the nominee and is elected president -- whatever they do they have to focus very much on how we can create jobs, how we are going to make the U.S. more competitive," Kravis said.
As political attacks on Romney spill over into criticism of the private equity business, the industry has had to defend its image against stereotypes of asset strippers.
Kravis, aged 68, spoke passionately about charity, calling it one of his most rewarding endeavors.
"Yes we can buy another company and all, that's nice. But being able to look at the smile on people or have a young person come up and say, Mr or Mrs Kravis, you made a huge difference in my life, you got me off drugs because of the program you created -- money can't buy that," Kravis said.
"Giving back is something that comes from the heart to me. It's not that I do it because it's the right thing, I do it because I want do it."
Kravis, who founded KKR in 1976 together with Jerome Kohlberg Jr and George Roberts, defended the publicly listed model for private equity firms, arguing the interests of fund investors and fund managers continued to be aligned.
"George and I have not taken a penny out of KKR (by going public). We ended up with about a $6 billion balance sheet that we can use to continue to invest in our own companies and to invest in new products and businesses at KKR," Kravis said.
KKR, whose investments include retailer Toys R US Inc, Internet domain registration company Go Daddy Group Inc and hospital operator HCA Holdings Inc (HCA.N), became widely known through its $25 billion leveraged buyout of RJR Nabisco in 1988, a battle that was immortalized in the bestseller "Barbarians at the Gate."
The investment firm, which listed in New York in 2010, boasted $59 billion in assets under management as of the end of 2011, having expanded beyond the buyout business in assets such as credit, real estate and hedge funds.
"It used to be that you would go in to see a CEO and you would ask them is your company for sale and if they said 'no we have no interest in selling', that was sort of the end of the conversation," Kravis said.
Kravis singled out one transaction that he said finally convinced KKR to look at how it can invest across the capital structure of a company, including debt -- Warren Buffett's investment in 2002 in then cash-strapped energy group Williams Companies Inc (WMB.N), based in Tulsa, Oklahoma.
"We knew them, I'm from Tusla, we built a nice relationship with them. We said all we could do to help you is buy the company. They said we want to stay public, what we need is some long-term subordinated debt and an equity kicker that comes in with it," Kravis said.
"We could not do it, along came Warren Buffett and made a terrific investment. Don't blame him, he was set up and could take advantage of it. That convinced us that we got to be able to take advantage of such things."
Reporting by Greg Roumeliotis in New York; Editing by Alwyn Scott