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Democrats weigh reducing new taxes to get Sinema’s vote for climate bill

The senator from Arizona, a centrist fiscal hawk, previously raised concerns about plans to revise federal tax laws

Sen. Kyrsten Sinema (D-Ariz.) walks through the Capitol to the Senate floor for a vote on Aug. 2. (Jabin Botsford/The Washington Post)
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Senate Democrats are discussing whether to dial back some of their proposed taxes targeting wealthy investors and billion-dollar corporations, part of a new scramble to win the support of Sen. Kyrsten Sinema (D-Ariz.) and advance their broader economic agenda swiftly.

One week after brokering a deal that secured the must-have vote of Sen. Joe Manchin III (D-W.Va.), top party lawmakers have set their attention on assuaging the other centrist in their ranks. They have actively engaged Sinema in private negotiations in recent days, opening the door for possible revisions to the health-care and climate-focused bill known as the Inflation Reduction Act.

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Publicly, Sinema has said nothing about the measure, and her aides maintain she is still reviewing it. Behind the scenes, though, the senator has spoken with Democrats about at least two of the proposal’s tax provisions, according to two people familiar with the matter who spoke on the condition of anonymity to describe the sensitive negotiations.

The first would tighten a policy that benefits hedge fund, private equity and real estate managers by taxing much of their compensation at a lower rate than most other earned income. The second sets a minimum tax on large, profitable companies that pay nothing to the U.S. government. On both, Sinema’s exact requests are unclear, though she previously expressed some openness to a minimum corporate tax. The people familiar with the talks cautioned that discussions are fluid.

The two proposals — along with other cost-cutting and revenue-raising components of the bill — are expected to generate about $739 billion in new federal funds. The amount is enough to offset Democrats’ new spending on health care and climate, while still generating more than $300 billion that can pay down the deficit over the next decade. New data released Wednesday from the nonpartisan Congressional Budget Office affirmed those deficit reduction figures.

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But resolving Sinema’s concerns could require party leaders to thread a difficult needle, as they labor to preserve a delicate deal that has satisfied Manchin and his fellow Democrats at a moment when some in the party hold competing views about how best to respond to an economy facing major price spikes and other significant challenges.

Republicans, meanwhile, vehemently oppose the bill. Many party lawmakers approached Sinema directly on the Senate floor late into Tuesday, before appearing Wednesday at a news conference to ratchet up their attacks.

“We are making this case … as aggressively as we can,” said Sen. Mike Crapo (Idaho), the top Republican on the tax-focused Senate Finance Committee. He said the GOP’s pitch is “not just to Senator Sinema, but we’re making it to every single senator — and, frankly, every single American.”

Manchin, meanwhile, acknowledged that he and Sinema are “exchanging texts back and forth.” Only minutes before his news conference Tuesday, the two lawmakers spoke in the Senate, with Manchin kneeling beside Sinema as she presided over the chamber.

“She’ll make a decision based on the facts,” Manchin said afterward.

Sinema’s office declined to comment.

For Democrats, their campaign to rethink the U.S. tax code has been a difficult one more than a year in the making.

Since winning the House, Senate and White House in 2020, President Biden and allied lawmakers have pledged to unwind the tax cuts adopted under President Donald Trump in 2017. Democrats argue that the rate reductions have disproportionately benefited corporations and the wealthy; Republicans have maintained that the cuts were essential to fostering economic growth before the coronavirus pandemic.

Democrats initially aimed to raise tax rates as part of their economic package, the ill-fated, approximately $2 trillion Build Back Better Act. But they ultimately faltered after Sinema opposed any change to individual and corporate tax levels. Once Democrats removed the proposals last fall, seemingly securing Sinema’s support, Manchin staked out his opposition to the bill and its price tag. It passed the House but never came to a vote in the Senate.

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In rebooting Democrats’ economic agenda last week, Senate Majority Leader Charles E. Schumer (N.Y.) worked out a new approach with Manchin. Rather than raise rates on all companies, the two men agreed to implement a 15 percent minimum tax that applies to corporations that pay nothing. This week, Democrats described the proposal as one of fairness, citing the fact that companies in “a lot of instances are paying a lower tax rate than firefighters and nurses,” as Sen. Ron Wyden (Ore.), the leader of the Senate Finance Committee, put it Tuesday.

Democrats also targeted the ways private equity and hedge fund managers are taxed on fees their clients pay them. Lawmakers said their plan amounts to closing the “carried interest loophole,” which allows these investment managers to pay taxes on those fees at the much lower rate charged on capital gains rather than at the rate most Americans pay on wages.

Democrats in recent days have lined up behind the plan, but Schumer and Manchin worked out those tax policy contours without Sinema’s immediate input. Much like Manchin’s vote, though, Sinema’s is crucial: Democrats must band together if they hope to adopt the bill under the process known as reconciliation. That procedure works only if all 50 Democrats and Vice President Harris band together to vote for the legislation, overcoming a GOP filibuster.

“We’re in touch with Senator Sinema; we’re in touch with all of the members. I’m very hopeful we’re all going to stay united and pass this bill,” Schumer said at a news conference Tuesday.

The discussions vexed some Democratic aides this week. While they acknowledged that Sinema already had made clear her concerns with the changes on carried interest, they thought she had supported an earlier attempt to impose a corporate minimum tax after Biden sought to rework the Build Back Better Act.

Sinema offered her views in October, appearing to parse her words carefully. In a tweet, she described it as a “common-sense step” that would ensure firms pay “a reasonable minimum corporate tax on their profits,” while adding she would be “continuing discussions” with the White House on economic issues.

But Sinema in recent days has heard an earful from businesses, including from those in her own state. Danny Seiden, the president and CEO of the Arizona Chamber of Commerce and Industry, said a number of manufacturers, pharmaceutical companies and other firms brought their concerns about the corporate minimum tax to the senator directly during a Zoom call Tuesday afternoon.

“She wanted to know from us [if] this bill was written in a way that had negative impacts on business,” Seiden said, noting that she asked companies to share more of their views but did not “tip her hand.”

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Republicans, meanwhile, also sought to ratchet up pressure on Sinema and her fellow Democrats. On Tuesday, GOP lawmakers signaled that they plan to force the issue on taxes once the bill comes to the floor, since reconciliation opens the door for them to offer unlimited amendments. A day later, they intensified their pressure campaign, highlighting to reporters what they described as the wide-ranging negative consequences of Democrats’ plans.

Taking aim at the corporate minimum tax, Sen. Rob Portman (R-Ohio) said the burden would fall on workers, who could “see their wages and benefits be reduced because of this taxation at a time when they’re having a really hard time keeping up with inflation.”

Tax experts have in recent days debated the merits of the minimum tax, with GOP opponents saying it could discourage corporations from claiming many of the incentives in the tax code designed to encourage corporate investment. Many Democratic tax experts are also skeptical of the merits of such a measure, and Treasury Department officials last year voiced concerns about the idea when the White House was pushing it.


A previous version of this article incorrectly said Sen. Mike Crapo represents Indiana. He represents Idaho. The article has been corrected.