The private equity lobby wins from tax hikes in the Anti-Inflation Act


Sen. Kirsten Sinema (D-Ariz.) bowed to pressure. Climate, health and tax package.

It was decided that the Democrats They tried to hold their meeting The Inflation Relief Act of 2022 passed through nearly 19 hours of debate on Sunday with the help of a 50-50 Senate Vice President Harris’ tiebreaking vote.

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The package proposes Hundreds of billions of dollars in new spending, is funded by new taxes, including a corporate minimum tax that requires companies with annual profits of more than $1 billion to pay a minimum tax rate of 15 percent. As originally written, private equity firms would have to account for profits from their various holdings and pay taxes if the total exceeded the $1 billion threshold.

Cinema, which has blocked Democratic ambitions to raise taxes for more than a year, drew objections Saturday, two people familiar with the matter said, speaking on condition of anonymity to discuss private talks. Without changes in the bill, the senator argued, small and medium-sized businesses owned by private equity firms would be exposed to the tax, which violates a Democratic pledge to raise taxes only on the largest corporations. A Cinema spokeswoman said several Arizona small businesses have raised concerns, including a plant nursery.

The senator’s objections came days later He urged Democrats to abandon a different effort to raise taxes on private equity managers By closing the so-called “carried interest loophole” that allows investment managers to pay lower rates on a portion of their income.

In a statement, Sinema’s office said it “targets tax avoidance, makes the tax code more effective and supports Arizona’s economic growth and competitiveness.”

“Senator Sinema knows that at a time of record inflation, rising interest rates and slowing economic growth, stifling investments in Arizona businesses will hurt the Arizona economy’s ability to create jobs, and the Deinflation Act helps Arizona’s economy grow,” the statement said. said.

The last-minute changes represent a significant win for the private equity sector and could save $35 billion over the next decade. Private equity represents a roughly $4 trillion industry in the United States, and the sector has grown significantly over the past decade. flexed its considerable political muscle Again and again in Washington.

From the start, private equity firms have been framed as a challenge to Democrats in crafting a new minimum tax. Generally, large partnerships are formed under the tax code as “C corporations” and pay corporate taxes. The new minimum tax clearly applies to them. But private equity firms are legally formed as partnerships, which typically pay taxes on their owners’ personal income. Senate Democrats say they designed the legislation to ensure that wealthy investment managers who own many C corporations and other business entities worth more than $1 billion are subject to the tax.

But the tax is not intended to hit small subsidiaries that build private equity portfolios, said Ashley Shapital, a spokeswoman for Senate Finance Committee Chairman Ron Wyden (D-Ore.).

Independent analysts largely agreed with this reading of the provision. “The language in the bill is intended to make sure they’re treated the same way,” said Steve Wamhoff, a tax expert at the Institute on Taxation and Economic Policy, a left-leaning think tank. “The idea that billion-dollar private equity funds should be preserved to save small businesses is absolutely ridiculous.”

Steve Rosenthal, a tax policy analyst at the Tax Policy Center, a nonpartisan think tank, said “small businesses would not be affected” by the original provision. “But it can be clarified,” he added.

Confusion over the provision, however, touched off a late fight to remove it from the bill. In recent days, private equity advocates circulated a document to lawmakers saying the tax could hit 18,000 companies that employ 12 million people, according to a copy obtained by The Washington Post. The document called the move a “new stealth tax” that would put small companies owned by private equity at a “competitive disadvantage, subject to the book minimum tax when similarly sized competitors are not.”

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Republicans have seized on the issue, and Sen. John Thune (RS.D.) worked with Cinema. On Sunday, the Senate approved the amendment 57-43. In addition to Sinema, six Democrats voted yes: Sinema’s fellow senator Mark Kelly of Arizona; CATHERINE CORTES MASTO and Jackie Rosen of Nevada; John Ossoff and Raphael G. of Georgia. Warnock; and Maggie Hassan of New Hampshire.

The Senate later voted 51-50 to make up lost revenue by restricting “pass-through” companies — which include private-equity firms — from claiming more than $250,000 in annual tax deductions.

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