Sinema made the Schumer cut had a loophole in the interests of the reconciliation bill

US Senate Majority Leader Chuck Schumer (D-NY) holds his weekly news conference after the Democratic caucus luncheon at the US Capitol in Washington on August 2, 2022 .

jonathan ernst | Reuters

Senate Majority Leader Chuck Schumer said Friday that Democrats “had no choice” but to remove a key tax provision from his main spending bill to gain support from Sen. Kyrsten Sinema.

Sinema, a centrist Democrat from Arizona, had withheld her support for the Reduce Inflation Act, the sweeping bill that includes much of the Biden administration’s fiscal, climate and health care agenda. Senate Democrats need her support to pass the bill in the Senate on a party-line vote using the budget reconciliation process, which requires a simple majority vote in the Senate split 50-50 by party.

Sinema announced Thursday night that he would in fact support the legislation, following an agreement “to remove the accrued interest tax provision.”

She was referring to the bill’s inclusion of language that would reduce the so-called accrued interest loophole, a feature of the tax code that both republicans and Democrats, including former President donald trump – have tried to close.

Accumulated interest refers to the compensation that hedge fund managers and private equity executives receive from their companies’ investment earnings. After three years, that money is taxed at a long-term capital gains rate of 20%, instead of a short-term capital gains rate, which tops out at 37%.

The Inflation Reduction Act was intended to reduce that loophole by extending the short-term tax rate to five years. The bill’s provision was projected to raise $14 billion over a 10-year period.

“I pushed for it to be in this bill,” Schumer, DN.Y., said of the proposal to narrow the loophole.

But “Senator Sinema said she wouldn’t vote for the bill, she wouldn’t even move forward unless we killed it,” he said. “So we had no other choice.”

Sinema emphasized Thursday night that after the reconciliation bill is passed, “I look forward to working with [Sen. Mark Warner, D-Va.] to enact interest-bearing tax reforms, protecting investments in the American economy and encouraging continued growth while closing the most egregious loopholes that some abuse to avoid paying taxes.”

A spokeswoman for Sinema defended the senator’s record when asked by CNBC on Friday about Schumer’s comments and her stance on shared 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 hurt Arizona’s economy and ability to create jobs.”

Schumer said another fiscal piece of the Inflation Reduction Law was removed to secure the deal with Sinema. This stemmed from a proposal to impose a 15% corporate alternative minimum tax targeted at wealthy corporations accused of dodging their tax obligations. It was projected to raise $313 billion, more than 40% of the bill’s revenue.

While that part of the bill was changed, “$258 billion remains, so the vast majority remains,” Schumer said.

And while the accrued interest provision was defeated, Schumer said Democrats added a special tax on share buybacks that will generate $74 billion. He said several lawmakers she spoke with are “excited” about that update.

“I hate stock buybacks. I think they are one of the most selfish things corporate America does,” Schumer said. “I would like to abolish them.”

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