Arizona Democratic Sen. Kyrsten Sinema announced late Thursday night a tax provision that she objected to had been removed from Democrats’ plans to pass a party-line climate, health and taxes bill, and the bill would advance.
“We have agreed to remove the carried interest tax provision,” Sinema said in a statement. “Subject to the parliamentarian’s review, I’ll move forward.”
Senate Majority Leader Chuck Schumer said that an agreement had been reached that “I believe will receive the support of the entire Senate Democratic conference.”
He said that the agreement “preserves the major components of the Inflation Reduction Act, including reducing prescription drug costs, fighting climate change, closing tax loopholes exploited by big corporations and the wealthy, and reducing the deficit by $300 billion.”
He added, “The final version of the Reconciliation bill, to be introduced on Saturday, will reflect this work and put us one step closer to enacting this historic legislation into law.”
Some news reports this week had indicated Sinema had a particular objection to the carried interest tax provisions of the reconciliation bill. Budget reconciliation measures can be approved with only a simple Senate majority, meaning Democrats can pass it in a 50-50 Senate with a tie-breaking vote from Vice President Kamala Harris – presuming all 50 Democrats are on board.
The provision Democrats have now removed from the bill would have raised the tax rate for carried interest, part of the compensation of private-equity and hedge-fund managers and executives. According to Payscale, the average hedge fund manager salary is $145,437 a year.
Carried interest is the percentage of an investment’s gain that money managers take as compensation. Under existing law, carried interest is taxed as an investment with a tax rate of 20% instead of an income tax rate of 37% if the money managers hold the investment for at least three years.
The Democratic proposal would have extended that window to five years and make other changes seeking to make it harder for hedge funds and private equity firms to restructure compensation to avoid taxes. The change would have brought in an additional $14 billion in federal revenue, the nonpartisan Congressional Budget Office has estimated.
Since her first run for the Senate in the 2018 election cycle, Sinema has raised more than $2.2 million in campaign cash from the securities and investment industry, more than from any other industry, not including retired workers, according to Open Secrets, a nonprofit that tracks campaign fundraising.
Prior to her statement Thursday night, Sinema’s office had said she would not decide on the bill at least until the Senate parliamentarian has ruled on whether the measure can qualify for the budget reconciliation process, a powerful tool that can be used to quickly pass legislation.
In order to bypass the chamber’s usual 60-vote threshold, reconciliation bills must meet a strict rule that their provisions deal with spending and revenue, with the Senate parliamentarian making the determination about what provisions meet that qualification.
As of Thursday, Democrats and Republicans on Senate committees were still pitching the parliamentarian on what should be allowed or disallowed in the bill.
Schumer said Thursday the chamber will hold a rare Saturday vote to proceed to the measure, setting up a final vote next week.