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Senate Democrats have agreed to eleventh-hour changes to their marquee economic legislation that preserve a commonly-used method of financing real estate developments.
The deal clears the major impediment to pushing one of President Joe Biden’s paramount election-year priorities through the chamber in coming days.
Sen. Kyrsten Sinema, D-AZ, a centrist seen as the pivotal vote in the 50-50 chamber, said in a statement that she had agreed to revamping some of the measure’s tax and energy provisions and was ready to “move forward” on the bill. She’s conditioned her support on the removal of a plan to eliminate the “carried interest” tax deduction.
That’s been a proposal she has long opposed, along with major real estate trade organizations, though it is a favorite of West Virginia Democratic Sen. Joe Manchin and many progressives.
Also known as “promoted interest” or a “promote” in real estate circles, carried interest is often given to a developer by the limited partners investing in a project and paid out if the property sells and generates returns beyond what the developer and investors agreed on. It is commonly held to give a project’s developer a financial stake in the development’s longer-term success and its elimination, real estate lobbyists have held, would disrupt development by upsetting the ways capital traditionally flows to projects.
The carried interest provision was estimated to produce $13 billion for the government over the coming decade, a small portion of the measure’s $739 billion in total revenue.
It will be replaced by a new excise tax on stock buybacks which will bring in more revenue than that, said one Democrat familiar with the agreement. The person, who was not authorized to discuss the deal publicly and spoke on condition of anonymity, provided no other detail.
Senate Majority Leader Chuck Schumer, D-NY, said he believed his party’s energy, environment, health and tax compromise “will receive the support of the entire” Democratic membership of the chamber. His party needs unanimity and Vice President Kamala Harris’ tie-breaking vote to move the measure through the Senate over certain solid opposition from Republicans, who say the plan’s tax boosts and spending would worsen inflation and damage the economy.
The announcement came as a surprise, with some expecting talks between Schumer and the mercurial Sinema to drag on for days longer without guarantee of success. Schumer has said he wants the Senate to begin voting on the legislation Saturday, after which it would begin its summer recess. Passage by the House, which Democrats control narrowly, could come when that chamber returns briefly to Washington next week.
Democrats revealed few details of their compromise, and other hurdles remained. Still, final congressional approval would complete an astounding resurrection of Biden’s wide-ranging domestic goals, though in more modest form.
Democratic infighting had embarrassed Biden and forced him to pare down a far larger and more ambitious $3.5 trillion, 10-year version, and then a $2 trillion alternative, leaving the effort all but dead. Instead, Schumer and Sen. Joe Manchin, the conservative maverick Democrat from West Virginia who derailed Biden’s earlier efforts, unexpectedly negotiated the slimmer package two weeks ago.
The overall bill would raise $739 billion in revenue. That would come from tax boosts on high earners and some huge corporations, beefed-up IRS tax collections and curbs on drug prices, which would save money for the government and patients.
It would spend much of that on initiatives helping clean energy, fossil fuels and health care, including helping some people buy private health insurance. That would still leave over $300 billion in the measure for deficit reduction.
Its approval would let Democrats appeal to voters by boasting they are moving to reduce inflation – though analysts say that impact would be minor – address climate change and increase U.S. energy security.
