Sinema demands changes to Schumer-Manchin spending bill

Democrat Senate Majority Leader Chuck Schumer of New York may have thought he’d cleared his only stumbling block in getting a massive tax-and-spend bill past the evenly divided Senate and on to President Joe Biden’s desk — Democrat Sen. Joe Manchin of West Virginia, who agreed to the plan last week after sinking the Biden administration’s “Build Back Better” initiative. 

Schumer misjudged.

On Wednesday, Politico reported Arizona Democrat Sen. Kyrsten Sinema “is seeking a couple changes to Democrats’ climate, health care and tax bill” — and one of them could end up nixing the deal entirely.

“The Arizona Democrat, who has not weighed in on whether she will vote for the legislation, wants to nix language narrowing the so-called carried interest loophole, which would change the way some investment income is taxed,” Politico reported.

“Cutting that provision would ax $14 billion of the bill’s $739 billion in projected revenue.”

Sinema also wants to add $5 billion in drought resiliency money to the bill. That’s a key concern for Arizona’s legislators.

The carried interest provision will likely be the most problematic. Put in simple terms, it changes the tax code so that asset managers with profitable investments would only pay a 20 percent capital gains rate.

Democrats have sought to end it, while Wall Street has argued the effects will hurt small businesses, pensions and endowments the most.

“Over 74% of private equity investment went to small businesses last year,” said Drew Maloney, president and chief executive of the American Investment Council, according to Reuters.

“As small business owners face rising costs and our economy faces serious headwinds, Washington should not move forward with a new tax on the private capital that is helping local employers survive and grow.”

Sinema has been ardently opposed to changing the tax code, with language that would eliminate the carried interest loophole being removed from a House-passed tax-and-spend bill in 2021 to keep the Arizona senator’s vote, according to The Hill.

However, Manchin has said he’s “adamant” the carried interest loophole is closed if he’s to sign on to the newly negotiated package — and it was included at his behest.

“I’m not prepared to lose” it, he said. “What we have is a good bill that’s fair with everybody. It’s a give-and-take proposition.

“I think the people that have benefited from carried interest for years and years and years knew that they had a good run, it was long overdue to get rid of it and you can’t justify it anymore.”

If the issue can’t be resolved, the plan doesn’t have 50 votes — and likely won’t pass the reconciliation process in the Senate.

A former senior aide to Sinema, John LaBombard, said he was surprised that Schumer would even agree to changes to the tax code without negotiations with the Arizona senator.

“The question that I have and what has confused me about Sen. Schumer’s strategy is not necessarily whether and when to loop her [in]. What perplexes me more is the idea that he would knowingly and — in my mind — somewhat randomly add in a tax policy provision that was not in the House bill, was not in the White House framework, and that he knew she had substantive concerns and questions about,” he said.

Instead, he said, the Senate majority leader “let her and the rest of the caucus learn about the agreement via press release.”

Schumer and Biden are finding out the consequences of that the hard way, it seems.