Senate Democrats get it done

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Aug 08, 2022 View in browser   By Bernie Becker DEFINITELY A BUSY WEEKEND: Let's put it this way — Senate Democrats passed a package of tax increases, climate investments and prescription drug reforms after more than a couple times when it looked like their efforts to pass a big budget reconciliation measure had died. But of course, there had to be one last plot twist before the Senate could get that bill across the finish line and send it to the House. And perhaps fittingly, that plot twist involved Sen. Kyrsten Sinema (D-Ariz.) and private equity, both of whom were key players in the recent internal Democratic debate over whether to keep the current tax treatment of carried interest. Here's the short version of what happened: Sinema backed an effort led by GOP senators that softened how the Democrats' 15 percent minimum tax on big corporations would affect private equity. (The Washington Post's Jeff Stein had a good rundown of that situation, including private equity's efforts behind the scenes and the debate over which part of a private equity firm's portfolio would be subject to the tax.) That left Democrats with a $35 billion revenue hole to fill, which led them to extending for another couple years (through 2028) the limits on how much pass-through businesses can write off. Those restrictions were put into place by the GOP's 2017 tax law, and then extended another year by the Democrats' coronavirus response in 2021. Our Burgess Everett and Marianne LeVine have all the back story on how that trade-off came together, as well as lots of other details on how Sen. Joe Manchin (D-W.Va.), Senate Majority Leader Chuck Schumer and their 48 colleagues finally got to this point. But it's worth asking: Did the GOP's efforts to undercut the Democrats with the private equity carveout in the book tax actually make the bill even worse from their perspective — or at the very least, in the eyes of some of the party's biggest supporters? MORE ON THAT IN A BIT. But first, don't you worry — we're hoping to find a good tax angle on Woodstock '99 . Nope, not an old Michael Keaton movie or any number of self-titled groups in Congress : Today marks an even three decades since the Dream Team, a collection of professional basketball stars, won the Olympic gold medal in Barcelona by defeating Croatia. Are you mulling whether to give us some tips? Just do it. Email: bbecker@politico.com , bfaler@politico.com and teckert@politico.com . You can also reach us on Twitter at @berniebecker3 , @tobyeckert , @brian_faler , @POLITICOPro and @Morning_Tax .   The Women Rule series brings together rising stars, accomplished professionals, and women at the pinnacle of their careers to inform, empower and connect women across diverse sectors and career levels. Attendance to our quarterly in-person POLITICO Women Rule meetings, is by invitation-only. Join our interest list and learn more here .     BACK TO THE BOOK TAX: Here's the thing — pass-through advocates like the National Federation of Independent Business and other groups have long backed the GOP, and they've been working hard to keep any expansion or extension of the current loss limits out of the Democrats' budget reconciliation measure. NFIB and dozens of other groups, including the National Association of Manufacturers and the S Corporation Association, wrote to congressional leaders last month — urging them not to rely on loss limits or an expansion of Obamacare's net investment income tax to help pay for any new fiscal package. Those revenue-raisers, the groups wrote, would be " shouldered entirely on the backs of small, individually, and family-owned businesses." As we noted above, both parties have used loss limits to help pay for their priorities in budget reconciliation measures over the last five years. But until deep into Sunday, it looked like neither of those two tax changes would make it into the Democrats' reconciliation package — until Democrats needed to find a new revenue source, and fast, to replace the money lost from the private equity changes in the book tax. Pass-through advocates said the loss limits were put into the bill so quickly on Sunday that they didn't get much of a chance to mobilize, and wondered whether GOP lawmakers would have made the private equity push if they knew the end result would be an extension of the loss limits. If nothing else, some Republicans seemed to acknowledge that their work to poke holes in the book tax might not have totally worked out. "Democrats almost fixed it, but then they made it worse by replacing it with a tax on small business," the House Ways and Means Republicans tweeted about the Sunday afternoon debate. SO NOW WHAT? The House is scheduled to take up the Senate's fiscal package late this week. So is there any chance the bill runs into trouble on the other side of the Capitol, where Democrats only have a four-vote cushion at the moment? In short, it doesn't look likely. There has been some talk about whether more centrist House Democrats would be very keen on voting for tax increases, especially this close to the election. But the truth is that every House Democrat except for one voted for the broader Build Back Better legislation last November, so it's not clear how much political gain there would be from voting no now. And in any event, most House Democrats have been largely positive about the Senate's efforts, even those blue state lawmakers who have for months said they couldn't back any big tax measure that didn't offer relief to the Tax Cuts and Jobs Act's $10,000 cap on state and local deductions. Plus, it's hard to imagine Nancy Pelosi letting this vote fail, particularly if it could basically be her swan song as speaker. Some further reading to catch up from over the weekend: "Wireless industry scores tax win in Democrats' final reconciliation package," via Pro Tech's John Hendel. Plus: " Democrats go with 'the least bad' tax ," from Pro Tax's Brian Faler. And from the energy side: " Washington bureaucracy could rescue Democrats from their EV tax credit problem," via our Tanya Snyder and Alex Daugherty. Also: The New York Post caught some hot mic sniping between Sen. Bernie Sanders (I-Vt.) and his Democratic colleagues over the child tax credit. Around the World BEST WAY TO DO IT: Liz Truss, the favorite to become the U.K.'s next prime minister., told The Financial Times that tax cuts would be her preferred way to help families struggling with higher energy prices. Offering tax relief — "not giving handouts" — is how the Conservative Party historically has handled these kinds of situations, Truss added. Some economists have urged caution on tax cuts for whomever replaces Prime Minister Boris Johnson in September, arguing that too much relief could further aggravate inflation that is already projected to climb past 13 percent. Truss, the current foreign secretary, has promised to roll back an increase in national insurance contributions that her opponent for Tory leader, Rishi Sunak, oversaw as chancellor of the exchequer, and the proposed hike in the corporate tax rate from 19 percent to 25 percent. Related note: " Sunak scorns Truss's claims that tax cuts can avert recession," via The Guardian. Around the Nation WE'LL GET THERE: A top GOP lawmaker in Texas says he believes the state legislature will restore a big corporate tax preference , the Texas Tribune reports. The tax break program, known as Chapter 313, will expire at the end of this year, because the state Senate decided against taking up a measure to keep it going. That marked the first time in Chapter 313's two decades of existence that the program wasn't extended. But Texas House Speaker Dade Phelan said lawmakers would "take a long, hard look" at how to bring it back, and to make the program more transparent and accountable. Chapter 313 cuts local school district property taxes for corporations — which supporters say attracts new businesses to Texas, while skeptics say it gives benefits to companies that would be investing in the state anyway. Quick Links NBC News: "Robert Brockman, billionaire charged in $2 billion tax evasion case , dies at 81." From our team in New York: "How Adams' pals — and a favorite dining spot — link him to one of the state's top tax delinquents ." The Buffalo News: "Empty Amazon warehouse in Hamburg gets scrutiny over tax breaks. " Did you know? Joni Mitchell, who wrote the song "Woodstock," didn't actually perform at the original Woodstock in 1969.   INTRODUCING POWER SWITCH: The energy landscape is profoundly transforming. Power Switch is a daily newsletter that unlocks the most important stories driving the energy sector and the political forces shaping critical decisions about your energy future, from production to storage, distribution to consumption. Don't miss out on Power Switch, your guide to the politics of energy transformation in America and around the world. SUBSCRIBE TODAY .       Follow us on Twitter Toby Eckert @tobyeckert Bernie Becker @berniebecker3 Brian Faler @brian_faler   Follow us

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