Arizona Democratic Senator Kyrsten Sinema has emerged as a potential obstacle to her party’s efforts to pass a landmark tax, climate and health-care package next month, in part due to long-standing opposition to closing the carried-interest loophole.
Senate Majority Leader Chuck Schumer and West Virginia moderate Joe Manchin announced a deal on a package of $369 billion in climate and energy spending and $313 billion in corporate tax increases, along with an increased tax rate on carried interest and increased tax-audit funding, on Wednesday. Many Democratic caucus members have embraced the agreement, but all 50 need to be on board for it to pass the Senate using a special budget process in the face of united Republican opposition.
Sinema is “reviewing the text and will need to review what comes out of the parliamentarian process,” her spokesperson, Hannah Hurley, said Thursday, referring to the top Senate rules official’s decision on whether the legislation comports with strict budget rules.
Senate Democrats on Wednesday sent their 725-page Inflation Reduction Act to Parliamentarian Elizabeth MacDonough for a review that isn’t expected to be completed until at least next week, according to a person familiar with the process. A more limited ruling on the prescription drugs piece of the bill could come as early as Thursday since that part has been under review for weeks.
Senator Chris Van Hollen told reporters MacDonough’s review could mean it takes two more weeks for the Senate to pass the bill. And that timeline assumes all 50 members of the caucus remain healthy in the wake of a spate of COVID infections.
Leadership outreach
It is not clear what outreach, if any, Democrats are conducting to get Sinema on board with the deal.
Manchin told reporters that he hasn’t spoken to Sinema about it and Schumer’s office did not respond to a question about whether Sinema will be on board with it. Sinema was not spotted by other senators at a Thursday morning caucus meeting on the legislation’s contents.
Sinema has previously opposed ending the carried-interest tax break, a position that puts her at odds with nearly every other Democrat in Congress, many of whom argue that it is a tax break for Wall Street that should be eliminated.
The tax perk allows private equity and hedge-fund managers to pay lower capital-gains tax rates, which top out at 23.8%, rather than the 37% income-tax rate on a portion of their earnings.
Manchin told reporters he wants to assure Sinema that tax rates have not been raised. He said he’s “not prepared to lose” closing the carried interest loophole, which he has talked about ending for years. The provision would raise $14 billion over 10 years.
The House last year scrapped plans to raise corporate and individual rates to get Sinema’s support for the deal. She never publicly signed off on the House replacement, which included a millionaires’ surtax.
Sinema is no stranger to being an outlier in her party on tax issues. She has also opposed increasing the 21% corporate levy, capital-gains rates and the tax brackets for top earners. House Ways and Means Chairman Richard Neal said he met with Sinema last fall to make the economic case for higher tax rates, but wasn’t able to convince her.
Last year, Sinema and Arizona were targets of an advertising campaign from the trade group that represents private equity, the American Investment Council, that highlighted the benefits private equity brought in economic activity and jobs to Sinema’s state.
Representative Raul Grijalva, a fellow Arizonan, said Thursday it came down to an “issue of unity after much delay” on a Democratic priority.
“I think Sinema, politically, doesn’t have a choice,” Grijalva told reporters.
SALT debate
One other potential tax hangup to the agreement may be easing. A handful of Democrats from high-tax states like New York, New Jersey and California had been insisting that any package must include lifting the limit on deductions for state and local taxes, or SALT.
One of those lawmakers, Democratic Representative Tom Malinowski of New Jersey, said that based on the outline of the agreement he was ready “to wholeheartedly embrace this.”
“None of us said we’re not going to vote for any bill coming out of the Senate unless it deals with SALT,” he said Thursday. “This is a bill that deals with other issues. It’s consistent with my values and priorities, and with a lot of the things that my constituents sent me here to fight for, particularly lower drug prices.”
New York Democratic Representative Tom Suozzi made it clear he can support the Senate bill without SALT because it doesn’t touch the personal income tax code. New Jersey Democratic Senator Cory Booker also expressed his support.
New Jersey Senator Bob Menendez, a key SALT proponent, declined to comment on it to reporters Thursday. On Wednesday, Menendez spokesperson Francisco Pelayo told reporters “there are issues impacting New Jersey families that should be addressed, namely lifting the SALT cap.”
— With assistance from Laura Davison and Jarrell Dillard
