Comment Senate Democrats agreed Sunday to shield private equity firms from a new minimum tax on billion-dollar corporations, bowing to pressure from Sen. Kyrsten Sinema (D-Ariz.), who insisted on making the change to spread of Democrats climate, health care and tax package. The decision came as Democrats tried to hold their caucus through nearly 19 hours of debate on the Inflation Relief Act of 2022, which passed the Senate 50-50 on Sunday with the help of a tiebreaker by Vice President Harris . Senate passes inflation-reduction bill, closing long-delayed health and climate bill The package proposes hundreds of billions of dollars in new spending, financed in part through new taxes, including a minimum corporate tax that would require companies with annual profits of more than $1 billion to pay a tax rate of at least 15 percent. As originally written, the provision would have required private equity firms to calculate profits from their various holdings and pay the tax if the total exceeded the $1 billion threshold. Sinema, who for more than a year has blocked Democratic ambitions to raise taxes, raised objections Saturday, according to two people with knowledge of the matter, who spoke on condition of anonymity to discuss private talks. The senator argued that without changes to the bill, small and medium-sized businesses that happen to be owned by private equity firms would be exposed to the tax, breaking a Democratic pledge to raise taxes only on the largest companies. A Sinema spokeswoman said several small Arizona businesses, including a nursery, had expressed concerns. The senator’s objections came days after she persuaded Democrats to abandon a different effort to raise taxes on private equity managers by closing the so-called “carrying interest loophole,” which allows investment managers to pay lower interest rates on certain portions of their income. In a statement, Sinema’s office said its goal is to “target tax avoidance, make the tax code more efficient and support Arizona’s economic growth and competitiveness.” “At a time of record inflation, rising interest rates and slowing economic growth, Senator Sinema knows that preventing investment in Arizona businesses would hurt the Arizona economy’s ability to create jobs, and she ensured that the Act to Reduce inflation helps Arizona’s economy grow,” the statement said. he said. The last-minute changes mark a major win for the private equity industry and will save an estimated $35 billion over the next decade. Private equity represents a roughly $4 trillion industry in the United States, and as the sector has grown significantly over the past decade, it has repeatedly flexed its considerable political power in Washington. From the start, the unusual way private equity firms are structured has been a challenge for Democrats crafting the new minimum tax. Typically, large conglomerates are formed as “C corporations” under the tax code and pay corporate taxes. The new minimum tax will clearly apply to them. But private equity firms are legally formed as partnerships, which typically pay taxes on their owners’ individual returns. Senate Democrats say they crafted the legislation to ensure that wealthy investment managers who own many C corporations and other business entities with a combined value of more than $1 billion would be subject to the tax. But the tax was never intended to hurt smaller subsidiaries that make up private equity portfolios, said Ashley Shapitle, a spokeswoman for Senate Finance Committee Chairman Ron Wyden (D-Ore.), who called her claims “nonsense.” industry for this purpose. Independent analysts largely agreed with this reading of the provision. “The language in the bill was intended to make sure they were 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 billions of dollars of private equity should be protected to save small businesses is absolutely absurd.” Steve Rosenthal, a tax policy analyst at the Tax Policy Center, a nonpartisan think tank, said his view is that “smaller companies will not be hit” by the original provision. “But it could be clarified,” he added. However, confusion over the provision led to a late fight to remove it from the bill. In recent days, private equity advocates circulated a document to lawmakers claiming the tax could hit 18,000 businesses employing 12 million people, according to a copy obtained by the Washington Post. The document called the measure a “new stealth tax” that would put small private equity-owned businesses at a “competitive disadvantage by subjecting them to the minimum tax when their similarly sized competitors are not.” How the Deflation Act Can Affect You and Change the US Republicans seized on the issue, and Sen. John Thune (RS.D.) worked with Sinema to craft an amendment that would clarify that profits from subsidiaries should not be counted in determining whether a corporation is subject to the new minimum tax . On Sunday, the Senate voted 57-43 to adopt the change. In addition to Sinema, six Democrats voted yes: Sinema’s fellow Arizona senator, Mark Kelly; Catherine Cortez Masto and Jacky Rosen from Nevada. Jon Ossoff and Raphael G. Warnock of Georgia. and Maggie Hassan of New Hampshire. The Senate later voted 51-50 to make up for the lost revenue by limiting “pass-through” companies — which can include private equity firms — from claiming more than $250,000 in annual tax credits.
