The path was nearly cleared for one of the cornerstones of President Joe Biden’s domestic agenda after Democrats agreed on a revised version of their tax and climate bill.
But it came at a price: To get the support of Senator Kyrsten Sinema — the pivotal Democratic vote in the 50-50 Senate — a levy on wealthy hedge fund managers had to be abandoned.
So the Democrats agreed to drop a provision that would have narrowed a tax break for carried interest, meaning wealthy private equity managers and venture capitalists will continue to be able to pay a lower capital gains rate on one of their main forms of compensation.
Lawmakers will also alter a 15% minimum tax on corporations and add a new 1% excise tax on stock buybacks.
Democrats have been eager to finish work on the legislation, even though it’s been drastically scaled back from Biden’s original vision for an expansive tax and social spending package that would advance the party’s climate goals.
From the White House, where he remains in isolation due to Covid-19, Biden praised it as “another critical step toward reducing inflation and the cost of living for America’s families” and urged the Senate to pass it quickly. Voting will begin this weekend.
There is still one more hurdle. Senate Democrats are still waiting for the parliamentarian to determine whether parts of the bill meet the chamber’s strict budget rules.
That means things like the domestic content requirements for cars eligible for electric vehicle tax credits, caps on insulin out-of-pocket costs and penalties for drug companies raising prices higher than inflation could be struck. That would dilute the bill even further.
Senate Majority Leader Chuck Schumer said in a statement that the revised legislation will be brought to the chamber floor on Saturday, setting the bill on the way to passage with a simple majority vote.
He believes all 50 members of the Democratic caucus back it, including West Virginia Senator Joe Manchin, who was a critical partner in resurrecting the bill.
Removing the measure to raise taxes on private equity managers from the bill means that the legislation, which Democrats initially envisioned as a way to overhaul the tax code, won’t include any new taxes on the rich.
It’s a compromise for sure, but Democrats are running out of time given they are expected to suffer heavy losses in midterms in November. Biden in the first proposals for this bill called for hundreds of billions of tax increases on wealthy Americans, ranging from nearly doubling the capital gains tax rate to much stricter inheritance taxes.