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Senate Democrats reach deal with Sinema on big climate, health and tax deal


Senate Democrats reach deal with Sinema on big climate, health and tax deal

Aug 05, 2022 | 7:05 am ET
By Jacob Fischler
Senate Democrats reach deal with Sinema on big climate, health and tax deal
Susan J. Demas

U.S. Sen. Kyrsten Sinema, the enigmatic Democrat from Arizona, is once again at the center of attention in Congress, where she’s the linchpin in Democrats’ plans to pass a party-line climate, health and taxes bill.

Democrats need every member of their Senate caucus to support the sweeping 725-page bill for it to pass in the evenly divided chamber under a complex budget process that allows certain legislation to pass by a simple majority.

And though Sinema is far from the only one to have withheld a statement of support, she’s seen as the person who holds the measure’s fate in her hands due to her history of bucking party leaders and her past opposition to some of its tax provisions.

Late Thursday night that was proved as Sinema announced a tax provision that she objected to had been removed from the bill, and it would advance. Senate Majority Leader Chuck Schumer issued a statement at the same time.

“We have agreed to remove the carried interest tax provision, protect advanced manufacturing and boost our clean energy economy in the Senate’s budget reconciliation legislation,” Sinema said in a statement. “Subject to the parliamentarian’s review, I’ll move forward.”

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.”

Sinema has been crucial to either the passage or failure of major legislation this year.

She was at the center of negotiations in drafting the $1.2 trillion bipartisan infrastructure bill that became law last year — and stood next to the president at the White House when a final deal was announced. And she was one of two holdouts on a larger version of a Democrats-only spending bill.

But when West Virginia’s Joe Manchin III, the other Democratic senator to withhold support for an earlier package, negotiated the current package directly with Schumer, the focus on Sinema as the only major Democratic obstacle intensified.

Tax provisions

Some news reports this week had indicated Sinema had a particular objection to tax provisions of the bill.

She reportedly was working to cut the provision that would raise 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.

Asked about Sinema’s position on one of the tax provisions, spokeswoman Hannah Hurley earlier Thursday sent a 2021 Arizona Republic story to explain the senator’s position on taxes more broadly.

“Folks have heard me say over and over again that I will only support revenue provisions that do not negatively impact Arizona’s economic growth,” she said in the story.

Hurley did not respond to further questions.

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.

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.

Sinema was also working to change the 15% corporate minimum tax included in the legislation, according to media reports.

The provision would require any business with more than $1 billion in revenue to pay at least 15% in federal taxes. The CBO estimates that provision would add about $313 billion in revenue over 10 years.

Both measures were key to making the bill cut the deficit.

Even with $369 billion in energy spending, the reconciliation measure in its initial form would reduce the deficit by more than $300 billion.

President Joe Biden in an appearance at a Democratic National Committee event on Wednesday night pleaded for the corporate tax increase, noting he’s from Delaware, the home of more corporations than any other state.

“I’m not anti-corporation, but everybody has to pay a little bit,” Biden said. “Fifty-five of these largest corporations in the country paid zero — zero in federal taxes while making 40 billion dollars a year in profits.”

Senate Democrats reach deal with Sinema on big climate, health and tax deal
U.S. Sen. Kyrsten Sinema (D-AZ) speaks during a United States Senate Committee on Finance hearing | Rod Lamkey-Pool/Getty Images

Drought money

Politico has also reported Sinema was seeking a $5 billion boost to the bill’s spending on drought resiliency funding — more than eight times the funding level in the bill agreed to by Schumer and Manchin.

As written, the bill would provide $575 million to the Bureau of Reclamation for drought response and preparedness and $13 million for drought relief for tribes.

Sinema faced a pressure campaign from business groups in Arizona who wanted her to kill the tax provisions, if not the bill itself.

The National Association of Manufacturers and the Arizona Chamber of Commerce released a joint poll Tuesday in which 90% of respondents opposed the bill’s 15% corporate tax rate.

The poll was conducted by NAM’s analytics team by text and email to Arizona manufacturing workers, managers and advocates.

“Arizona job creators will continue to urge lawmakers to reject this manufacturers tax and instead focus on policies that encourage job growth and strengthen our state and national economic competitiveness,” Arizona Chamber of Commerce & Industry President and CEO Danny Seiden said in a statement.

Climate pressure

Environmental advocates who see the legislation as a historic step forward are attempting to sway Sinema to support the bill.

In red-hot Arizona, and with a potential primary challenge looming in 2024, climate may prove to be the most salient issue for her.

The state average temperature has risen 2.5 degrees since 1900, according to a study by the National Oceanic and Atmospheric Administration and the Cooperative Institute for Satellite Earth System Studies.

The Phoenix metropolitan area saw an average of 45 days of at least 100 degrees from 2015 to 2020, also an increase from previous years.

And water levels at Lake Mead, which provides water to Arizona, Nevada and California, set record lows this summer.

Sierra Magazine, the publication of the environmental group, ran an article Wednesday with the title “Paging Senator Sinema: Global warming is killing your constituents — now’s the time to vote for climate action.”

“Her state is going to need her on this,” U.S. House Natural Resources Chairman Raúl Grijalva, a fellow Arizona Democrat closely aligned with the party’s progressive wing, told reporters last week. She “politically doesn’t have a choice.”

Parliamentarian still at work

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 Republican 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.