U.S. Senate Majority Leader Chuck Schumer (D-NY) holds the weekly news conference after the Democratic Party luncheon at the U.S. Capitol in Washington, August 2, 2022.
Jonathan Ernst | Reuters
Senate Majority Leader Chuck Schumer said Friday that Democrats had “no choice” but to remove a key tax provision from their big spending bill in order to win the support of Sen. Kyrsten Sinema.
Sinema, a centrist Democrat from Arizona, had withdrawn her support for the Lower Inflation Act, the sweeping bill that includes much of the Biden administration’s agenda on taxes, climate and health care. Senate Democrats need her support to move the bill through the Senate on a party-line vote using the budget reconciliation process — which requires a simple majority in the Senate, split 50-50 by party.
Cinema announced on Thursday night that it would indeed support the legislation, following an agreement “to remove the carried interest tax provision”.
He was referring to the bill’s inclusion of language that would limit the so-called interest rate loophole, a feature of the tax code that both Republicans and Democrats — including former President Donald Trump — tried to shut it down.
Carried interest refers to the compensation that hedge fund managers and private equity executives receive from their companies’ investment earnings. After three years, that money is taxed at a long-term capital gains rate of 20%, rather than a short-term capital gains rate of more than 37%.
The Inflation Reduction Act was intended to close this loophole by extending the short-term tax rate to five years. The bill’s provision was expected to raise $14 billion over a 10-year period.
“I pushed for it to be included in this bill,” Schumer, D-N.Y., said of the proposal to close the loophole.
But “Senator Sinema has said she will not vote for the bill, or even move forward if we don’t get it out,” he said. “So we had no choice.”
Sinema stressed Thursday night that after the reconciliation bill passed, “I look forward to working with [Sen. Mark Warner, D-Va.] to enact interest tax reforms, protecting investment in America’s economy and encouraging continued growth, while closing the most egregious loopholes that some abuse to avoid paying taxes.”
A Sinema spokeswoman defended the senator’s record when asked by CNBC on Friday about Schumer’s comments and her stance on the interest.
Sinema “has been clear and consistent for more than a year that it will only support tax reform and revenue options that support Arizona’s economic growth and competitiveness,” the spokeswoman said. “At a time of record inflation, rising interest rates and slowing economic growth, preventing investment in Arizona businesses would hurt Arizona’s economy and ability to create jobs.”
Schumer said another tax piece from the inflation-reduction law was removed in order to secure the deal with Sinema. This came from a proposal to impose a A minimum corporate alternative tax of 15% aimed at wealthy companies accused of avoiding their tax obligations. It was projected to raise $313 billion — more than 40% of the bill’s revenue.
While that part of the bill was amended, “there’s $258 billion left, so it remains the overwhelming majority,” Schumer said.
And while the carried interest provision was eliminated, Schumer said Democrats added an excise tax on stock buybacks that would raise $74 billion. He said many lawmakers he spoke with are “thrilled” with this update.
“I hate stock buybacks. I think it’s one of the most self-serving things that corporate America does,” Schumer said. “I would like to abolish them.”