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Sinema Seeks to Keep Private Equity Break, Curb Corporate Tax

·4 min read

(Bloomberg) -- Senator Kyrsten Sinema is seeking to preserve a tax break for investment managers and narrow a levy hike on large corporations in the economic package Democrats want to pass as soon as this week, people familiar with the discussions said.

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The Arizona Democrat, a pivotal vote in the Senate, is asking to drop a provision from the bill that would scale back a tax break for fund managers, known as carried interest, according to one person, who asked for anonymity because the discussions are private. She is also pushing to narrow the 15% domestic minimum tax on financial profits, also known as the book tax, people said.

Democrats need Sinema’s support to pass the bill using the fast-track budget procedure they are employing to bypass Republicans. Changing the tax provisions risks irking West Virginia Senator Joe Manchin, who negotiated the package with Senate Majority Leader Chuck Schumer. Manchin has said he is “adamant” that the carried interest change remain in the bill.

EXPLAINER: How the 15% US Minimum Corporate Tax Would Work

Manchin told reporters he has not heard of Sinema trying to remove the carried interest provision. Hannah Hurley, a spokesperson for Sinema, declined to comment about any requests to change the bill.

Politico and Axios previously reported details of Sinema’s negotiations. Sinema is also looking to add $5 billion in drought relief to the bill, Politico reported.

Democratic Senators Mark Kelly of Arizona and Martin Heinrich of New Mexico said the drought issues in their states should be addressed but didn’t say whether they want it in this bill.

Sinema has been faced with a barrage of lobbying from business interests and Senate Republicans. She has met in recent days with business groups representing her state as well as her GOP colleagues. Groups representing private equity and manufacturers have also been conducting advertising and advocacy campaigns to reach Sinema and Arizona voters since proposal went public last week.

One way to make the corporate minimum tax less costly to businesses is to let companies still claim depreciation tax breaks for their investments in equipment and facilities. The levy, as currently drafted, doesn’t allow businesses to claim those benefits.

The technology and manufacturing industries would be some of the most affected sectors from the book tax without the change. Companies, including Alphabet Inc.’s Google and General Motors Co., could be subject to the tax if it were to become law in its current form.

Republican Senators John Thune of South Dakota and Rob Portman of Ohio, who have been speaking with Sinema, have both raised concerns with how the minimum tax could undercut tax breaks that are designed to help companies to innovate and grow. Portman, at a press conference Wednesday, pointed to a bipartisan bill that passed by the Senate last week to provide funding and tax incentives for semiconductor companies as an example of how Congress has repeatedly encouraged business investment.

“Every developed country in the world helps to encourage their manufacturers to make more investments,” he said. “And here we are, less than a week later, saying, ‘you know what? We’ve changed our minds’?”

Sinema praised the corporate minimum tax last year when it was introduced in the Senate, without endorsing specifics. She was involved in the development of the proposal, but that was before inflation shot up and the threat of a recession materialized.

The changes Sinema is seeking could end up shaving tens of billions -- or more -- of revenue from the bill. That would likely mean that Democrats would have to cut into some of the roughly $300 billion worth of deficit reduction in the bill or trim some of the spending on climate and health initiatives.

Getting rid of the carried interest provision would only cut $13 billion from the $739 billion revenue expected to be raised by the package. The minimum corporate tax at 15%, however, is the biggest revenue generator in the bill, estimated at about $313 billion.

EXPLAINER: Why ‘Carried Interest’ Is the Most Reviled Tax Break: QuickTake

(Updates with drought relief, in fifth and sixth paragraphs)

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