U.S. Senate Majority Leader Chuck Schumer (D-NY) holds his weekly post-Democrat Caucus Party luncheon press conference at the U.S. Capitol in Washington, August 2, 2022.
Jonathan Ernest | Reuters
Senate Majority Leader Chuck Schumer said Friday that Democrats had “no choice” but to strike a key tax provision from their main spending bill in order to gain support from the Senator Kyrsten Sinema.
Sinema, a centrist Democrat from Arizona, had declined her support for the Cut Inflation Act, the sweeping bill that includes much of the Biden administration’s tax, climate and health care agenda. . Senate Democrats need his support to push the bill through the Senate on a party-line vote using the budget reconciliation process, which requires a simple majority vote. The chamber is split 50-50 between Democrats and Republicans.
Sinema announced on Thursday evening that it would indeed support the legislation, following an agreement “to remove the deferred interest tax provision”.
She was referring to including language in the bill that would narrow the so-called interest loophole, a feature of the tax code that Democrats and Republicans — including the former president donald trump – tried to close.
Deferred interest refers to the compensation that hedge fund managers and private equity executives receive from investment gains from their companies. After three years, this money is taxed at a long-term capital gains rate of 20%, instead of a short-term capital gains rate, which caps at 37%.
The Inflation Reduction Act sought to close this loophole by extending the short-term tax rate to five years. The provision of the bill was expected to bring in $14 billion over a 10-year period.
“I pushed for it to be in this bill,” Schumer, DN.Y., said of the proposal to close the loophole.
But “Senator Sinema said she wouldn’t vote for the bill, that she wouldn’t even budge if we didn’t withdraw it,” he said. “So we had no choice.”
Sinema stressed Thursday evening that after the adoption of the reconciliation bill, “I look forward to working with [Sen. Mark Warner, D-Va.] to enact interest-bearing tax reforms that protect investments in the U.S. economy and encourage continued growth while closing the most glaring loopholes that some abuse to avoid paying taxes.”
A spokeswoman for Sinema defended the senator’s case when asked by CNBC on Friday about Schumer’s remarks and his stance on the interest.
Sinema “has been clear and consistent for over a year that she will 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 interest rates and slowing economic growth, discouraging investment in Arizona businesses would harm Arizona’s economy and its ability to create jobs.”
Schumer said another tax element of the Cut Inflation Act was removed to secure the Sinema deal. This stemmed from a proposal to impose a Alternative minimum corporate tax of 15% for wealthy corporations accused of circumventing their tax obligations. It was expected to raise $313 billion, or more than 40% of the bill’s revenue.
Although that part of the bill has been changed, “there is $258 billion left, so the vast majority remains,” Schumer said.
And although the deferred interest provision was rolled back, Schumer said Democrats added an excise tax on stock buybacks that would raise $74 billion. He said several lawmakers were “excited” about the update.
“I hate stock buybacks. I think it’s one of the most self-serving things American companies do,” Schumer said. “I would like to abolish them.”