Sen. Kyrsten Sinema, D-Ariz., announced on Thursday she would "move forward" on the Democrats' Inflation Reduction Act after successfully lobbying to strip a tax measure targeting wealthy investors and scale back another tax aimed at big corporations.
Sinema, who has stayed mum on her views on the climate and health care deal cut by Sen. Joe Manchin, D-W.Va., and Senate Majority Leader Chuck Schumer, D-N.Y., pushed to eliminate a provision tightening a loophole allowing hedge funds and private equity managers to pay lower tax rates. Sinema, who was reportedly miffed she was left out of negotiations, said after getting her way on Thursday that she would support the deal as long as the Senate parliamentarian signs off.
"We have agreed to remove the carried interest tax provision, protect advanced manufacturing, and boost our clean energy economy in the Senate's budget reconciliation legislation," Sinema said in a statement. "Subject to the Parliamentarian's review, I'll move forward."
Sinema added that she would work with Sen. Mark Warner, D-Va., to "enact carried interest tax reforms, protecting investments in America's economy and encouraging growth while closing the most egregious loopholes that some abuse to avoid paying taxes."
One of those abused loopholes is the carried interest loophole, which allows wealthy investors to pay a 21% capital gains tax on income instead of the 37% top marginal tax rate. Manchin's original proposal would not have closed the loophole but would have required investors to keep their assets for at least five years. The plan was projected to raise $14 billion over the next decade.
Manchin told reporters that he was "adamant" about including the provision in the bill, arguing that it allows the "wealthiest one-tenth of 1% of Americans to take advantage" of a loophole without "any risk at all."
"I just want someone to explain. I can't understand it," Manchin told Fox News.
Rep. Katie Porter, D-Calif., called out Sinema for using her leverage to focus on a tax loophole that mainly helps "private equity titans and hedge fund managers."
"Kyrsten Sinema should be putting the needs of the American people first, and the American people benefit from a fair tax code," Porter told MSNBC. "There's a reason we call it a loophole."
Even former President Donald Trump called to eliminate the carried interest loophole, complaining in 2016 that hedge funds were "getting away with murder."
Sinema's statement also signaled that Democrats scaled back their proposal to impose a 15% minimum tax on corporations that make over $1 billion per year. The exact change is unclear but is expected to benefit some manufacturers, The Washington Post reported, after "many corporate executives, including Arizona business leaders, had petitioned Sinema" in recent days.
To make up for the lost revenue from ceding to Sinema's demands, Democrats will instead include in the proposal a 1% tax on corporate stock buybacks, according to CNN. The measure is projected to raise $73 billion. Democratic negotiators also agreed to Sinema's request to add drought resistance funding.
The statement does not mean Sinema is definitely on board since the Senate parliamentarian could still rule that some of the measures in the bill may not be included in the budget reconciliation process, which allows Democrats to pass legislation with a simple majority. Democrats do not need to accept the guidance of the parliamentarian but Sinema has insisted on it.
Manchin and Schumer's deal initially called for $768 billion in new revenue, largely funded by addressing tax avoidance with the tax measures and money for the IRS to crack down on tax cheats. The deal will also allow Medicare to negotiate certain prescription drug prices. The legislation will provide more than $360 billion in funding for climate measures and extend Obamacare subsidies to about 13 million people for another three years. Manchin also insisted that the deal include $300 billion in deficit reduction. It's unclear how the changes to pacify Sinema will affect the breakdown but Schumer told reporters that the bill will still reduce the deficit by $300 billion.
Schumer is looking to hold a vote on the bill as soon as Saturday. If the bill gets 50 votes, there will be 20 hours of debate followed by a so-called "vote-a-rama," a marathon series of amendment votes, followed by a final vote on the bill. The House would then have to pass the legislation and send it to President Joe Biden.
Biden in a statement on Thursday called the deal a "critical step toward reducing inflation and the cost of living for America's families."
"I look forward to the Senate taking up this legislation and passing it as soon as possible," he said.
While progressives and other members of the party have gotten behind Manchin's deal, which includes just a fraction of the climate and social funding initially sought by Biden and progressives, Sinema's last-minute push on behalf of wealthy donors — after she already sank Democrats' efforts to pare back the Trump tax cuts on the rich and watered down the Medicare drug pricing measure — left a bad taste in some Democrats' mouths. Sinema previously drew ire for opposing her party's efforts to reform the filibuster, getting her censured by the Arizona Democratic Party and raising the prospects of a progressive primary challenger.
"Sinema will either not run or lose her primary and take a job at a private equity firm," predicted Sawyer Hackett, a Democratic strategist. "Even Republicans don't go to the mat for carried interest like this."
