What Kyrsten Sinema’s tax cuts imply for rich traders

  • Senator Kyrsten Sinema reached an agreement Thursday to support the Inflation Reduction Act of 2022.
  • The tax bill has been cut.
  • This provision sought to close a loophole that would allow wealthy investors to pay lower taxes.

Senator Kyrsten Sinema of Arizona on Thursday agreed to support the Inflation Reduction Act of 2022, which means the bill has received support from all 50 Democrats in the United States Senate.

Her cooperation came with the removal of the interest tax provision, a small part of the bill aimed at reducing taxes for the wealthy.

“We have agreed to remove the differential interest tax provision, protect advanced manufacturing, and boost our clean energy economy under the Senate’s budget adjustment law,” Sinema said in a statement. a statement on Thursday.

It represents a momentary victory for some of the richest Americans. The provision targeted a loophole that could be used to provide tax breaks for hedge fund managers and others who manage money for a living. When fund managers make money for their clients through their investments, they get a share of that profit. They are allowed to classify such payment as capital gains, subject to a lower tax rate than salary and bonus payments. With the removal of this provision, fund managers have avoided restrictions that make it harder for them to keep paying the same low tax rate on their earnings.

Republicans and Democrats have both supported eliminating the tax cut since it was introduced to Congress in 2007 by a Law professor’s journal article. So far, they have not been able to close the loophole.

Trump-era policy added a warning for vulnerability through a three-year holding period, which means private equity funds must hold their portfolio companies for at least three years before cashing out.

The Inflation Reduction Act provision would extend that holding period to five years – meaning that even if it did survive discussions with Sinema, it would not close the loophole completely.

One Report for 2021 of financial software company eFront found that the average holding period for a private equity fund in 2020 is already 5.4 years.

However, the after-tax interest tax reserve is a relatively small part of the Inflation Reduction Act. Lawmakers estimate the provision will generate about $14 billion over 10 years, compared with the $790 billion they say will be generated as a result of the bill.

Senate Majority Leader Senator Chuck Schumer also repeat Thursday that the bill would still introduce a new hard minimum on taxes paid by America’s largest corporations.

“The agreement maintains key components of the Inflation Reduction Act, including reducing prescription drug costs, combating climate change, and closing tax loopholes left by large corporations and the wealthy,” Schumer said. , while reducing the deficit by $300 billion. The final version of the bill will be released on Saturday, he added.

President Joe Biden on Thursday night praising Sinema’s cooperation is “another important step toward reducing inflation and the cost of living for American families.”

Sinema’s opposition to the provision has opened up the possibility that she or Senator Joe Manchin of Virginia – who agreed to a surprise deal on the bill last week – could change the Act. Reduce inflation because of it. Both legislators helped Turn off President Joe Biden’s Build Back Better Plan.

However, the pair disagree on the transfer rate, a tax loophole that allows wealthy investors and hedge fund managers to pay less taxes. While closing the gap is Manchin’s priority, Sinema opposes eliminating the tax break.

Sinema’s announcement on Thursday confirmed that her interest in the bill had prevailed and that the provision would be cut.

Manchin and Sinema did not immediately respond to requests for comment.

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