After a move that successfully removed the carried interest tax provision, which targeted a loophole used by wealthy Americans, Sen. Kyrsten Sinema, D-Ariz., said that she would “move forward” in supporting the Inflation Reduction Act. This move is a win for Sinema and the private equity sector, which pours huge amounts of cash into her campaign’s coffers.
“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,” said Sinema in an interview. “Subject to the Parliamentarian’s review, I’ll move forward.” Sinema’s campaign has been funded largely by individuals and political actions committees from the private equity and investment sector. With over $282,000 provided in donations this election cycle, this makes her the Senate’s sixth-largest recipient, according to data from the Center for Responsive Politics.
This data from the Center for Responsive Politics also shows that Senate Majority Leader Chuck Schumer, who spearheaded the bill, received $1.2 million in donations for his campaign from individuals and PACs in the industry. Making it one of the campaigns with the most contributions from hedge funds. Initially included in the original reconciliation package Senate Democrats unveiled last week, the carried interest provision aimed to remove a loophole that allows hedge fund managers and private equity to pay fewer taxes. Being able to report income as capital gains instead of regular income, wealthy fund managers are able to drop their tax rate from 37.9% to 23.8%, which potentially saves them hundreds of thousands of dollars.
“I believe strongly in the carried interest loophole. I have voted for it. I pushed for it at first for it to be in this bill,” Schumer said Friday. “Senator Sinema said she would not vote for the bill, not even move to proceed unless we took it out. So, we had no choice,” as reported on Fox News. According to initial estimates, the loophole could have raised $14 billion in federal tax revenue. Sen. Sinema’s efforts to remove the carried interest loophole provision were applauded by the Chamber of Commerce, the nation’s largest business lobby group.
Neil Bradley, Chamber Executive Vice President and Chief Policy Officer said that “taxing capital expenditures — investments in new buildings, factories, equipment, etc., is one of the most economically destructive ways you can raise taxes. It punishes innovation, leaves a country poorer and less capable of growing.” “While we look forward to reviewing the new proposed bill, Senator Sinema deserves credit for recognizing this and fighting for changes,” he added.
The provision, according to claims from business and private equity groups, would have hurt U.S. small businesses the most. In a statement by the president of the Small Business and Entrepreneurship Council, Karen Kerrigan, she said the provision would end up being absorbed by “ordinary Americans and our nation’s small businesses.” “Increasing taxes on carried interest means many entrepreneurial firms and small businesses across sectors will not have access to the capital they need to compete, scale, innovate and navigate challenging economic conditions,” said Kerrigan.