U.S. Senate Majority Leader Chuck Schumer (D-NY) holds his weekly news conference after the Democratic caucus party luncheon on the U.S. Capitol in Washington, August 2, 2022.
Jonathan Ernst | Reuters
Senate Majority Leader Chuck Schumer said Friday that Democrats had “no alternative” but to drop a key tax provision from their major spending bill as a way to gain Sen. Kyrsten Sinema’s support.
Sinema, a centrist Democrat from Arizona, had withheld her support of the Inflation Reduction Act, the sweeping bill that features 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 party-line vote using the budget reconciliation process — which requires a straightforward majority vote within the Senate split 50-50 by party.
Sinema announced Thursday night that she would indeed back the laws, following an agreement “to remove the carried interest tax provision.”
She was referring to the bill’s inclusion of language that might narrow the so-called carried interest loophole, a feature of the tax code that each Republicans and Democrats — including former President Donald Trump — have tried to shut.
Carried interest refers to compensation that hedge fund managers and personal equity executives receive from their firms’ investment gains. After three years, that cash is taxed at a long-term capital gains rate of 20%, as a substitute of a short-term capital gains rate, which tops out at 37%.
The Inflation Reduction Act aimed to narrow that loophole by extending the short-term tax rate to 5 years. The bill’s provision was projected to lift $14 billion over a 10-year period.
“I pushed for it to be on this bill,” Schumer, D-N.Y., said of the proposal to narrow the loophole.
But “Senator Sinema said she wouldn’t vote for the bill, not even move to proceed unless we took it out,” he said. “So we had no alternative.”
Sinema stressed Thursday night that after the reconciliation bill passes, “I look ahead to working with [Sen. Mark Warner, D-Va.] to enact carried interest tax reforms, protecting investments in America’s economy and inspiring continued growth while closing probably the most egregious loopholes that some abuse to avoid paying taxes.”
A spokeswoman for Sinema defended the senator’s record when asked by CNBC on Friday about Schumer’s remarks and her stance on carried interest.
Sinema “has been clear and consistent for over a 12 months that she’s going to only support tax reforms and revenue options that support Arizona’s economic growth and competitiveness,” the spokeswoman said. “At a time of record inflation, rising rates of interest, and slowing economic growth, disincentivizing investments in Arizona businesses would hurt Arizona’s economy and talent to create jobs.”
Schumer said that one other tax piece from the Inflation Reduction Act was taken out as a way to secure the take care of Sinema. This one got here from a proposal to impose a 15% corporate alternative minimum tax geared toward wealthy corporations which might be accused of skirting their tax obligations. It was projected to lift $313 billion — greater than 40% of the bill’s revenue.
While that a part of the bill was altered, “$258 billion of that is still, so the overwhelming majority stays,” Schumer said.
And while the carried interest provision was nixed, Schumer said Democrats added in an excise tax on stock buybacks that may herald $74 billion. He said that multiple legislators he spoke with are “excited” about that update.
“I hate stock buybacks. I feel they’re probably the most self serving things corporate America does,” Schumer said. “I’d wish to abolish them.”