Democrats add stock buyback tax, scrap brought interest to win over Sinema

Democrats are including a share buyback tax to compensate for lost revenue in their climate change package to win over Senator Kyrsten Sinema (D-Ariz.), Whose vote is a necessity to push forward a core of the economic agenda of the president Biden.

Senate Majority Leader Charles Schumer (DNY) said Friday that the buyback tax would raise $ 74 billion, more than offset the loss of a $ 14 billion tax on reported interest and a $ 55 billion tax on depreciation costs. imposed by Sinema.

“I strongly believe in [closing] the loophole of carried interest. I voted for it. I pushed for it, I pushed for it to be on this bill. Senator Sinema said he would not vote for the bill, nor would he move to proceed unless we eliminated it. So we have no choice, “Schumer said.

However, Schumer expressed confidence that all Democrats would support the share buyback tax and noted that it is particularly popular with progressive lawmakers.

“I hate share buybacks,” Schumer added. “I think they are one of the most selfish things American companies do. Instead of investing in workers and training and research and equipment, they do nothing to improve their company and artificially raise the share price simply by reducing the number of shares. They are despicable. I would like to abolish them “.

The concessions to Sinema were tax breaks favored by the private equity industry and the US manufacturing sector.

Democrats needed to make sure they could substitute those tax revenues to fund their green energy and health policies and significantly reduce the federal deficit, a key priority for centrist Senator Joe Manchin (DW.Va.), who privately negotiated the initial deal. with Schumer.

“We have decided to remove the provision related to the tax on interest carried forward, protect advanced manufacturing and strengthen our clean energy economy in the Senate budget reconciliation legislation. Subject to the parliamentary review, I will move forward, “Sinema said in a statement Thursday evening.

The interest brought is one way in which hedge fund and private equity fund managers are paid to manage investments on behalf of their investors. It is taxed at a preferential rate of 23.8 percent – well below the top tax rate of 37 percent – and this has long been criticized as an unfair advantage for the rich.

According to the non-partisan research group OpenSecrets, executives from investment firms KKR, Goldman Sachs, Apollo Global Management and the Carlyle Group make up many of the major donors to Sinema’s campaign.

Some of Sinema’s aides landed on K Street. Alyssa Marois, the former legislative director of Sinema, lobbies for HSBC Bank. Former Sinema policy advisor Kate Gonzales is a lobbyist at Brownstein Hyatt Farber Schreck, whose clients include British private equity firm C5 Capital.

Sinema also insisted that the 15% minimum tax excludes companies that take advantage of accelerated depreciation, deductions that allow companies to pay a low tax rate when making large capital investments, such as purchasing new equipment. .

A last-minute lobbying blitz by manufacturers – who more often than not rely on accelerated depreciation to expand their operations – seemed to shift Sinema’s stance on the minimum tax, a proposal it expressed support for last October. .

The Arizona Chamber of Commerce partnered with the U.S. Chamber and the National Association of Manufacturers to run announcements that prompted Sinema to change course. Sinema privately asked working groups this week if the proposal was “written in a way that doesn’t fit” according to the Arizona Chamber, CNN reported.

“Tell your senators and congressmen to say no to taxes that would devastate Arizona producers,” a TV commercial told Phoenix and Tucson area residents this week.

The share buyback tax, which would raise tens of billions from the nation’s largest companies, is the most recent proposal to attract criticism from large business groups.

“Unfortunately, the new excise tax on share buybacks will only distort the efficient movement of capital where it can be best used and decrease the value of Americans’ retirement savings,” Neil Bradley, chief policy officer at the Chamber of Commerce, said. said in a note on Friday.

Share buybacks by the S&P 500 companies are on track to exceed $ 1 trillion for the first time this year. Large corporations make up the bulk of share buybacks and have increased their buybacks in recent years to raise the share price and reward shareholders.

Apple said in April that it would repurchase up to $ 90 billion of the company’s stock. Last month, Morgan Stanley announced $ 20 billion in new buybacks, while Nike approved a new $ 18 billion buyback program.

Prominent Democrats have criticized the wave of buybacks stemming from the 2017 Republican tax bill. They say companies should use their cash reserves to create more jobs in the United States and pay their workers more.

Wall Street analysts said Friday that a 1% tax on share buybacks would likely slow the buyback trend and instead push more companies to raise dividends.

The Democrats in the House included a 1% buyback tax in their $ 2.2 trillion reconciliation package approved last year. At the time, according to the Joint Taxation Committee, it was estimated to be making $ 124 billion over the next 10 years.

The sens. Sherrod Brown (D-Ohio) and Ron Wyden (D-Ore.) Previously launched a 2% tax, arguing that buybacks benefit wealthier shareholders at the expense of workers.

“Corporate share buybacks further enrich the already wealthy CEOs and major shareholders by helping them evade their fair share of taxes. They are another way corporations, billionaires and other ultra-rich play by their own tax rules, ”Brown and Wyden said in a 2021 statement issued alongside their legislation.

A report on the buyback tax included in the House-approved version of the Skadden Arps Law Firm’s Build Back Better Act criticized the measure for being too broad. He described the language of the bill as “broad enough to trigger the tax from certain acquisitions, divisions and other transactions.”

“If the provision is adopted as drafted, publicly traded companies will need to consider excise duty when weighing the overall costs and benefits of their share repurchase programs and when considering other corporate transactions that could involve ‘repurchases’. In general, the excise duty would make it more expensive to engage in share buybacks of all forms, “the authors of the article wrote in 2021.

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