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Sinema Now Supports Climate and Tax Bill, But With Removal of Provision Closing Carried Interest Loophole

Ruth Singleton
Published Date:
Aug 5, 2022

Sen. Kyrsten Sinema (D-Ariz.) announced on Thursday that she will support the climate and tax legislation known as the Inflation Reduction Act of 2022, the New York Times reported. Last week, Sen. Joe Manchin (D-W.Va.) announced his support of the bill, and she had been the last Democratic holdout in the Senate. Her agreement to the bill means that it can move forward through the Senate in the next few days.  

Sinema’s support of the bill was based on Senate Democrats agreeing to her demand to drop a provision that would have closed the carried interest loophole, which benefits hedge fund and private equity executives, and to change the structure of a 15 percent minimum tax on corporations. They also agreed to include drought money to benefit Arizona. 

The version of the Bill  that Manchin agreed to included a provision that would have closed the carried interest tax loophole. Under current carried interest rules, compensation paid to managers of certain investment entities, such as hedge funds and private equity funds, is taxed at favorable long-term capital gain rates instead of high-taxed ordinary income rates. The provision would have taxed these managers at ordinary income rates. That is the provision that Sinema insisted be dropped, and Democrats agreed to it. Democrats instead added a new 1 percent excise tax that companies would have to pay on the amount of stock that they repurchase, according to the Times. That provision would enable the legislation to reduce the federal deficit by as much as $300 billion, the same amount Democrats aimed for with the original deal and a key priority for Manchin. 

Democrats also agreed, at Sinema’s insistence, to restructure the 15 percent minimum tax on corporations to make it less burdensome on manufacturers. Finally, they agreed to a request by Sinema to include billions of dollars to combat droughts, a provision important to Arizona, as it is undergoing a severe drought. 

Sinema’s support brought Democrats one step closer to enacting crucial pieces of their domestic agenda, beginning with a series of votes over the coming weekend. 

Because Senate Democrats will use the budget reconciliation process, the bill will require a simple majority and cannot be stopped by filibuster. Because the Senate is split, 50-50, and all Republicans oppose it, Democrats needed every Senate Democrat on board. Vice President Kamala Harris, as president of the Senate, can provide the deciding vote needed to give it a majority. 

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