Senate Kyrsten Sinema (D-Ariz.) announced Thursday night that she has reached a deal with Senate leader Charles Schumer (DN.Y.) that could pave the way for Democrats to approve their budget reconciliation package.
The deal would remove a provision closing the so-called carry-rate loophole announced last week by Schumer and Senator Joe Manchin (TSWT.Va.).
Sinema said she and Schumer also agreed to protect manufacturing from the impact of a proposed 15 percent minimum tax, which Arizona business leaders warned would dampen economic growth.
The announcement clears the way for Sinema to vote Saturday in favor of a motion to pass a fiscal reconciliation package that would reform tax laws, tackle climate change, lower the cost of prescription drugs and narrow the federal deficit.
“We have agreed to eliminate the provision for tax-deferred taxes, protect advanced manufacturing and boost our clean energy economy in the Senate budget reconciliation legislation,” Sinema said, indicating she plans to vote to start the debate on the bill.
“Depending on the MP’s assessment, I will proceed,” she said.
Senate Democrats had been anxiously waiting for days for a positive sign from Sinema, who they feared was angry after being left out of a final round of talks.
With Sinema’s vote, Democrats now have the support of all 50 members of their caucus to pass what would become President Biden’s greatest domestic legislative achievement. It would cut the federal deficit by between $100 billion and $300 billion, according to various estimates, a feat Democrats can offer voters at a time of 40 years of high inflation.
“I am pleased to report that we have reached an agreement on the Inflation Reduction Act that I believe will have the support of the entire Democratic Senate conference,” Schumer said in a separate statement confirming the deal.
He said the agreement “maintains key components” of the deal he announced last week with Manchin to lower the cost of drugs, fight climate change, close tax loopholes and reduce the deficit.
“The final version of the Reconciliation Act, which is due on Saturday, will reflect this work and bring us one step closer to enacting this landmark legislation,” Schumer said.
Democrats expect to vote to begin debate on the 700-plus-page bill sometime Saturday afternoon.
That kicks off until 8 p.m. floor debate, followed by an open series of amendments known as a vote-a-rama, then a vote to finalize the legislation.
Sinema promised in her statement to work with colleagues to tackle the interest-based preferential tax rate, which would allow asset managers to pay a 20 percent capital gain rate on income they earn by advising clients on profitable investments.
“After this effort, I look forward to working with Sen. [Mark] Warner [D-Va.] to implement implemented interest rate reforms, protect investment in the US economy and encourage sustained growth, while closing the most egregious loopholes some are exploiting to avoid taxes,” she promised.
The announcement ended several days of intense discussions between Sinema, Schumer and Manchin.
Democratic senators said Sinema was not happy to be excluded from the secret negotiations Schumer and Manchin conducted last month to add sweeping tax reforms and climate provisions to the budget package.
The Arizona senator had previously made it clear that she opposed the abolition of the tax rate and reforms that would raise corporate taxes and threaten economic growth. Those priorities seemed somewhat overlooked in the Schumer-Manchin deal.
Sinema withdrew its support for the legislation and pushed for changes to soften the tax burden on manufacturers of a minimum corporate tax rate of 15 percent, according to sources familiar with the negotiations.
Manchin had at least two lengthy talks with Sinema on the Senate floor in recent days to win her over.
Multiple people familiar with the matter said Sinema wanted to exempt US manufacturing companies from the minimum 15 percent corporate tax that Schumer and Manchin introduced in the Inflation Reduction Act. That bill surprised nearly every senator — Sinema included — when it went public last week
According to a Senate estimate released this week, exempting manufacturing companies from the minimum tax on the book would cost about $45 billion in ten years.
Book is a tax accounting term that would actually make it more difficult for companies to avoid profit reporting and therefore increase what they would pay in taxes.
Sinema also told colleagues she opposed closing an interest rate loophole, which critics say would allow wealthy money managers to pay a lower effective tax rate than many middle-income Americans.
And the Arizona senator wanted $5 billion in drought-resistance funding for her home state, according to two Democratic senators.
The statements Sinema and Schumer released Thursday evening made no mention of drought relief.
Sinema refused to answer journalists’ questions when she emerged from her hiding place in the basement of the Capitol on Thursday afternoon.
She came under intense pressure from Arizona business leaders to oppose the corporate tax minimum.
“Given record high inflation, supply chain backlogs and a severe labor shortage, now is not the time to hammer manufacturers with new taxes,” Danny Seiden, president of the Arizona Chamber of Commerce and Industry, said in a statement earlier. Thursday.
“Arizona job creators will continue to urge lawmakers to reject this manufacturer tax and instead focus on policies that stimulate job growth and strengthen our state and economic competitiveness,” he said.
The Schumer-Manchin deal would have introduced a 15 percent minimum tax for companies with more than $1 billion in annual profits, though it exempts tax credits for green energy and microchip manufacturing from being nullified by that minimum tax threshold.
Republicans said the Democrats’ proposal would hit manufacturing companies particularly hard by replacing a major reform of the former President Trump’s 2017 Tax Credits and Jobs Act that would allow companies to fully spend their capital expenditures for a given year.
Over the next four years, the full charges under the Tax Credits and Jobs Act will be phased out.
Sinema told the Arizona Chamber of Commerce in April that she “would be unwilling to support tax policies that would disrupt … economic growth, or slow the business and personal growth of American industries.”
She made it clear to senior White House officials and Democratic Senate colleagues early on in the budget realignment negotiations that she was not in favor of raising the corporate tax rate by 21 percent, a key achievement of the tax reform bill of 2017.
“The whole country knows that I am against raising corporate taxes. That was true yesterday and it is true today,” Sinema told the Arizona Chamber of Commerce earlier this year.
Republican critics of the Schumer-Manchin deal said preventing full and immediate capital spending would raise taxes on many companies.
sen. Rob Portman (R-Ohio), who worked closely with Sinema in drafting last year’s $1 trillion bipartisan infrastructure bill, warned in an op-ed for The Wall Street Journal that it would “essentially” be a “tax on manufacturing.” lift.
He pointed out that the bipartisan Joint Taxation Committee estimates that nearly 50 percent of the new tax would hit manufacturers.
“Imposing this new tax on US companies and restricting certain US manufacturers from immediately writing off investment costs would make America less competitive and boost investment and jobs abroad,” he warned.
Sinema’s request for $5 billion in drought resilience funding also loomed as a potential problem, sources warned.
Ensuring access to more water for states lower in the Colorado River basin, such as Arizona, Nevada, and California, may come at the expense of higher basin states, such as Colorado, Utah, Wyoming, and New Mexico.
“We are dealing with a historic drought in Colorado. The state has had the worst wildfires in our state’s history. There is very little water in the Colorado River. And I think it would be great if we could do something about drought, but it has to be something that improves the situation in Colorado and in the upper Colorado River basin in a meaningful way,” said Senator Michael Bennet (D -Colo.), who is up for re-election in November.
Bennet warned that any drought-resistant language must provide a “permanent solution to the problem, otherwise it’s not worth doing.”