Sen. Kyrsten Sinema (D-Ariz.) wants Democrats to drop a provision that strengthens a tax loophole related to hedge fund managers and private equity executives from the $740 billion package enacting President Joe Biden’s climate plans , health care and tax plans, according to reports from Politico and Worthy.
Sinema’s apparent desire to remove the provision — which raises just 2 percent of the proposal’s total revenue and doesn’t even close the loophole — doesn’t immediately jeopardize Democrats’ hopes of passing the legislation through the Senate in the coming days. But it shows how the moderate first-term senator is willing to protect some of the nation’s wealthiest Americans from even small tax increases.
Sinema’s office did not immediately confirm or deny the reports and said the senator was still reviewing the legislation and awaiting decisions from the Senate congressman on its content. Politico and Axios also reported that Sinema wants additional funding for drought resilience — a key priority for Arizona, where water supply remains a top issue.
The carried interest loophole is notorious. It allows hedge fund managers and venture capitalists to tax their income at a 15% capital gains rate instead of much higher income tax rates, often saving them millions of dollars a year. Wall Street has worked hard to defend the gap over the past decade, ensuring its survival despite pledges by Presidents Barack Obama and Donald Trump to eliminate it.
The loophole is now closely associated with the private equity industry, where it applies to the 20% of a fund’s investment profits that its managers receive in addition to a fixed fee. If Democrats close the loophole, executives will pay the top marginal income tax rate of 37 percent.
The existing Democratic proposal, agreed to by Sen. Joe Manchin (DW.Va.) and Senate Majority Leader Chuck Schumer (N.Y.), would not close the loophole. Instead, it would require managers to hold investments for five years instead of three years to get the most favorable interest rate and create stricter requirements for those investments.
Manchin and Schumer’s proposal would raise just $14 billion over the next decade, while a plan by Sens. Ron Wyden (D-Ore.) and Sheldon Whitehouse (D-R.I.) for an outright shutdown would have raised $70 billion.
Still, even the modest proposal seems important to Manchin.
“About carried interest — for the richest one-tenth of 1% of Americans to take advantage of a tax break for them, that they take absolutely no risk and get the lowest tax rate?” Manchin told a local West Virginia radio host last week. “That’s how we got rid of it.”
The overall package gets most of its cash from tougher IRS enforcement and from establishing a 15 percent corporate tax floor, which aims to prevent large corporations from deflating their tax bills with credits and deductions. It is spending about $300 billion on deficit reduction and $370 billion on clean energy and climate change projects. It also gives Medicare the power to negotiate lower prices for prescription drugs and fund Obamacare subsidies.
On Tuesday, Sinema discussed the legislation with the Arizona Chamber of Commerce and the National Association of Manufacturers, two groups that oppose all tax increases in the legislation.
Her business-friendly positioning has paid dividends for her campaign account: In 2021 alone, she received more than $144,000 in donations from industry groups that lobbied against closing the carried interest loophole. Most recently, he got $100,000 from Wall Street and $50,000 from pharmaceutical companies in the second quarter of 2022 alone.
“We can only assume that she was motivated by the money they donate to her campaigns,” a former Sinema employee told HuffPost, speaking on condition of anonymity because they still work in Democratic politics. “I knew she always tried to be an atypical Democrat. He wants to be Arizona’s new hottie. I never thought he would just toe the party line. But throwing away the campaign promises you made and snubbing the people who elected you, that makes you the opposite of a fan. It makes you a corporate beauty.”