WASHINGTON – As Senate Democrats . stood on the verge of Passing a comprehensive climate and health care billSen. Joe Manchin, DW.VA, forced Sen. Kirsten Cinema to do something he had managed to avoid for more than a year: take ownership of the defense of a controversial tax break that benefited wealthy investment managers. does.
After an unexpected deal between Munchkin and Senate Majority Leader Chuck Schumer, D.N.Y., the Inflation Reduction Act, issued July 27, blinded Cinema, D-Ariz. This included a policy that it quietly objected to—what critics called a “lack of interest”—that allowed private equity managers to pay a much lower tax rate on their earnings than most. People do it on ordinary income.
The lobbyists swung into action. The cinema remained silent for almost a week, leaving some Democrats upset that she might torpedo the entire bill. Behind the scenes, she was fighting to protect the $13 billion tax break. And she succeeded, with Schumer eventually releasing a revised version of the package to win her critical vote.
Declaring its support, the cinema said in its August 4 statement, “We have agreed to remove the interest tax provision made.”
Cinema also changed the 15% corporate minimum tax under Manchin-backed legislation that would exempt entities owned by private equity funds, which the project estimated would save the industry $35 billion.
Kim Closing, a former Treasury Department official, worked on tax analysis and helped develop the Biden administration’s positions from 2021 to this June.
The preservation of the interest break made stands out, especially as Joe Biden is the third consecutive president to have called for its abolition. The tax break is now set to avoid its second major tax overhaul by both parties in five years some minor limitations In the 2017 Republican tax law.
“Those special interests get special treatment because they find sensitive politicians who accept their arguments,” Closing said. “Cinema in this case.”
In addition to the last-minute changes, Sinema’s long-standing objection to raising tax rates on upper earners and corporations means the Democratic bill will largely preserve the 2017 Trump tax cut, called the Tax Cuts and Jobs Act. Or as the TCJA is known, even though Biden ran undoing them.
“This bill largely preserves the TCJA,” said Kyle Pomerleau, a senior fellow who studies tax policy at the conservative American Enterprise Institute.
Responding to questions from NBC News about why she supports interest tax breaks and opposes rate hikes, cinema spokeswoman Hannah Hurley said in an email that the senator “makes every decision based on one criterion: Arizona.” What’s best for.”
“She has been clear and consistent for more than a year that she will only support tax reforms and revenue options that support Arizona’s economic growth and competitiveness,” Hurley said. “In times of record inflation, rising interest rates, and slow economic growth, discouraging investment in Arizona businesses will hurt Arizona’s economy and ability to generate jobs.”
‘Showing its true colors’
bill 51-50 passed on Sunday, breaking the tie with Vice President Kamala Harris. It is expected to be passed in the House on Friday. Overall, the closing and many Democrats said, it is a strong bill that would raise corporate taxes, mitigate climate change and fund health care.
The American Investment Council, which lobbies for private equity, took credit for saving the tax break, saying its team “worked to ensure” that lawmakers “understood” the upsides of existing legislation.
“Our advocacy helped prevent punitive tax increases that would make it difficult for investors to continue to support jobs, small businesses and pensions in every state,” Drew Maloney, the group’s president and CEO, said in a statement.
Other experts see interest as a special advantage for wealthy fund managers and say that eliminating it will have little impact on the economy.
Larry Summers, “I don’t really get the argument at all that people who work for a living and make a living by investing for other, very wealthy people should pay taxes at half the rate,” says Larry Summers, former Treasury secretary who held powerful positions in the Clinton and Obama administrations, MSNBC. but said on Wednesday, “It feels wrong to me, and it’s the effect of lapses of interest.”
Summers, a business-friendly liberal who heavily criticized Democrats’ US rescue plan last year, said the protection of interest done was not an “inspiring” example of democracy at work. He suggested that its existence was less about merit and more about “campaign contributions received by some of the leading actors here”.
a financial Times The analysis found that Sinema received more than $500,000 in campaign contributions from executives from private equity groups during the 2022 election cycle.
In lieu of revenue from interest paid, the cinema-backed version included a 1% excise tax on stock buybacks. It also secured an additional $4 billion in drought relief funds, which have been touted by many Democrats in western states.
“It is particularly appalling that a special carving was made after the interest provision fell from the bill,” said Samantha Jacobi, a senior tax legal analyst at the Center on Budget and Policy Priorities, a liberal think tank. She said it “shows the power of private equity as a special interest group and their ability to lobby for profits even in the last hours.”
Sinima’s move has also drawn criticism from progressives in Arizona, who are already eyeing a Democratic challenge in 2024, when she will be up for re-election.
“She’s showing her true colors,” said Luis Avila, a community organizer in Phoenix and volunteer for the group Primary Cinema.