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Senate Drops Carried Interest Curbs to Secure Sinema's Vote

Posted on Aug. 5, 2022

A provision to make it more difficult to claim reduced tax rates on carried interest income has been dropped from the Senate's reconciliation bill at the request of Arizona Democrat Sen. Kyrsten Sinema. 

Sinema, a centrist whose vote is needed for the Senate to secure the 51 votes required to advance the sweeping tax, climate, and prescription drug bill (H.R. 5376), objected to extending the holding period on investments eligible for carried interest treatment to 5 years, instead of the current 3 years.

Instead, Senate Majority Leader Charles E. Schumer, D-N.Y., agreed to swap the provision out in favor of an excise tax on stock buybacks that would raise $73 billion.

The bill's provision to impose a 15 percent minimum tax on annual corporate profits in excess of $1 billion remains and Sinema said in a statement that she is open to working on changes to the treatment of carried interest in future legislation.

“Following this effort, I look forward to working with Senator [Mark] Warner [D-Va.] to enact carried interest tax reforms, protecting investments in America's economy and encouraging continued growth while closing the most egregious loopholes that some abuse to avoid paying taxes.”

In a statement, Schumer said he believes the agreement on the bill, called the Inflation Reduction Act of 2022, will receive the support of the entire Senate Democratic conference.

“I have had many productive discussions with members of our conference over the past three days and we have addressed a number of important issues they have raised. 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,” Schumer said.

The final text of the bill will be introduced on August 6, and the Senate will hold a procedural vote to allow debate to begin. The debate and process of offering amendments, known as "vote-a-rama" is expected to last through the weekend and a final vote on the legislation isn't expected until August 7 or August 8.

Defined as more than 15 votes on the same legislation, the largely symbolic vote-a-rama would provide Republicans with the opportunity to force Democrats’ hands on several issues that could come back to haunt them during the November midterms.

President Biden welcomed the announcement, saying in a statement that the bill “will make our tax system more fair by making corporations pay a minimum tax.  It will not raise taxes on those making less than $400,000, and it will reduce the deficit.”

“I look forward to the Senate taking up this legislation and passing it as soon as possible,” Biden said. 

Sinema's announcement followed days of discussions and competing reports, including one from the Senate Finance Committee on August 4 showing new data from the Joint Committee on Taxation on companies that paid less than the proposed 15 percent minimum book tax in 2019.

According to the analysis, between 175 and 200 of those companies making over $1 billion paid an average effective tax rate of 4.5 percent.

Finance Committee member Elizabeth Warren, D-Mass., said she’s excited about the three progressive priorities in the legislation but acknowledged that any or all of them could be watered down before a final vote.

“Of course, I’m worried,” Warren said. “I’m worried right up until we’ve finished the final vote here in the Senate and everyone has signed off and the bill has gone over to the House.”

Correction, August 5, 2022: The excise tax on stock buybacks would raise $73 billion.

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