Jonathan Ernst | Reuters
Senate Majority Leader Chuck Schumer said Friday that Democrats “have no choice” but to drop a key tax provision from a major spending bill in order to gain the support of Senator Kirsten Senema.
Senema, a centrist Democrat from Arizona, had withheld her support for the Inflation Cuts Act, a sweeping bill that includes much of the Biden administration’s tax, climate and health care agenda. Senate Democrats need her support to pass the bill through the Senate on a partisan vote using the budget compromise process, which requires a simple majority vote. The room is divided 50-50 between Democrats and Republicans.
Sinema announced Thursday night that it would indeed support the legislation, after agreeing to “eliminate the carry-over tax provision.”
She was referring to the bill’s inclusion of language that would narrow the so-called carry-benefit loophole, a feature of tax law that both Democrats and Republicans — including former President Donald Trump — have tried to close.
Carried interest refers to the compensation received by hedge fund managers and private equity executives from the earnings of their companies’ investments. After three years, these funds are taxed at the long-term capital gains rate of 20%, rather than the short-term capital gains rate, which is 37%.
The Inflation Reduction Act aims to narrow this loophole by extending the short-term tax rate to five years. The bill’s appropriations were expected to raise $14 billion over 10 years.
“I lobbied for it to be included in this law,” Schumer, DNY, said of the proposal to narrow the loophole.
But “Senator Senema has said she won’t vote for the bill, and won’t even move forward unless we remove it,” he said. “So we had no other choice.”
Senema confirmed Thursday evening that after the reconciliation bill was approved, “I look forward to working with them [Sen. Mark Warner, D-Va.] To enact interest tax reforms, protect investments in the American economy and encourage continued growth while closing the most egregious loopholes that some abuse to avoid paying taxes.”
A cinema spokeswoman defended the senator’s record when asked by CNBC on Friday about Schumer’s comments and her stance on the portable interest.
The spokeswoman said Cinema “has been clear and consistent for more than a year that it will only support tax reforms and revenue options that support Arizona’s economic growth and competitiveness.” “At a time of record inflation, rising interest rates and slowing economic growth, discouraging investments in Arizona businesses would harm Arizona’s economy and its ability to create jobs.”
Schumer said another tax piece of inflation-reducing law was taken in order to secure the deal with Sinema. This came from a proposal to impose a A 15% minimum alternative corporate tax target is targeted at wealthy companies accused of cheating on their tax obligations. It was expected to raise $313 billion – more than 40% of the bill’s revenue.
While that portion of the bill has been adjusted, Schumer said, “$258 billion of that amount remains, so the vast majority remains.”
While the carry-in interest clause has been removed, Schumer said Democrats have added a selective tax on stock buybacks that will bring in $74 billion. He said many lawmakers are “excited” about the update.
“I hate share buybacks,” Schumer said. “I think it’s one of the most beneficial things to corporate America.” I would like to cancel it.