Democrats drop interest as Sinema paves way for tax vote
The way was nearly clear for one of the president’s cornerstones
But that comes at a price: To gain the support of Senator Kyrsten Sinema – the pivotal Democratic vote in the Senate 50-50 – a tax on wealthy hedge fund managers had to be scrapped.
Democrats have therefore agreed to drop a provision that would have reduced a tax break for carried interest, meaning wealthy private equity managers and venture capitalists will continue to be able to pay a lower capital gains rate. on one of their main forms of remuneration. Lawmakers will also change a 15% minimum corporate tax and add a new 1% excise tax on stock redemptions.
Democrats are eager to finish work on the legislation, even though it has been significantly scaled back from Biden’s original vision of a broad tax and social spending package that would advance the party’s climate goals.
From the White House, where he remains isolated due to Covid-19, Biden hailed it as “another critical step toward reducing inflation and the cost of living for American families” and urged the Senate to adopt it quickly. Voting will begin this weekend.
There is still one obstacle. Senate Democrats are still waiting for the congressman to determine whether parts of the bill meet the chamber’s strict budget rules.
That means things like domestic content requirements for cars eligible for electric vehicle tax credits, caps on insulin costs, and penalties for drug companies raising prices above inflation. could be hit. This would dilute the bill even further.
Senate Majority Leader
He thinks all 50 members of the Democratic caucus support him, including the West Virginia senator
Removing the measure to raise taxes on private equity managers from the bill means that the legislation, originally envisioned by Democrats as a way to overhaul the tax code, will not include any new taxes on the wealthy. .
It’s a trade-off for sure, but Democrats are running out of time given they’re expected to suffer heavy midterm losses in November. Biden, in the first proposals for this bill, called for hundreds of billions in tax increases for wealthy Americans, ranging from doubling the capital gains tax rate to much tougher estate taxes.
The buy-back provision was on the table for months of talks between Schumer and Manchin but was dropped in favor of the 15% minimum tax on large corporations.
Manchin has repeatedly said that the bill does not include any new tax increases and is only intended to stop tax evasion. The new tax on share buybacks goes against this approach. His office had no comment Thursday evening.
Stock markets took the news in stride, with S&P 500 index futures rising 0.2% ahead of the official opening of U.S. exchanges.
Still, the redemption tax is unlikely to be welcomed by investors, said
The agreement reached to bring Sinema on board would reduce the original proposed minimum corporate tax by 15% by creating an exemption from tax deductions for depreciation. The hole created by this new exemption as well as the removal of the deferred interest clause would be more than offset by the 1% excise tax on share buybacks, according to people familiar with the talks.
The stock buyback tax, however, is expected to generate less than the $124 billion estimated when the House passed it last year.
One of Manchin’s other demands was for the legislation to reduce the deficit.
Other revenue would come from tougher tax compliance enforcement by the Internal Revenue Service, repealing a Trump administration restriction on prescription drug reimbursements, raising $122 billion, and allowing Medicare to negotiate the cost of high-priced drugs, which generates $102 billion.
Sinema said in a statement that she would continue discussions with the senator
The fate of that effort remains murky, given a possible Republican takeover of one or both houses of Congress in November’s midterm elections, which could eliminate the ability of Democrats to pass a such a bill after January.
The legislation as drafted before talks with Sinema would spend $370 billion on climate change measures and energy programs while extending Obamacare bonuses for three years. Sinema mentioned a clean energy boost through his efforts, but details about that weren’t immediately available.
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