Democrats faced a wave of complaints that their proposed new minimum tax on corporations, which they’ve now agreed to narrow, would disproportionately hit manufacturers.
At the same time, their plan to target the “carried interest” loophole that’s now being dropped had riled powerful Wall Street lobbyists.
But the buyback tax, which Democrats have been contemplating for months, has been relatively uncontroversial — at least for a tax increase. That’s probably because it is so small.
“It’s not like business endorsed this, but they also didn’t lay across the train tracks to try to stop it,” said Todd Metcalf, a former top Senate tax aide now at the consulting firm PwC.
“This is the lowest hanging fruit.”
The swap will not only help secure Sinema’s support. It will also allow Democrats to say they are raising taxes on the well-to-do while scratching their long-standing itch to do something about corporate stock repurchases. Democrats were infuriated when, in the wake of Republicans’ 2017 tax cuts, many companies used their savings to buy back stock, enriching shareholders.
The change will also blunt Republican charges Democrats are hurting manufacturers at a time when supply chains remain snarled.
The excise tax appears to be more than enough to cover the $14 billion lost with the carried interest proposal and by squeezing the 15 percent corporate minimum levy, or “book-income” tax. Democrats say it would generate $74 billion in revenue, which would keep the overall savings in the package in the neighborhood of $300 billion.
The savings are less, though, than the $124 billion budget forecasters had estimated last year when House Democrats considered the proposal. One reason for the difference is that the tax would have begun in January of this year, so Democrats have now lost a year of revenue.
The tax changeup could be a little awkward for Sen. Joe Manchin (D-W.Va.), who has repeatedly argued in recent days that Democrats’ bill is merely closing loopholes, not imposing new taxes.
“It will take a very, very creative messaging person to say that this excise tax is closing a loophole,” said Metcalf. “It clearly is a new tax.”
It’s the latest change forced by the enigmatic Sinema (D-Ariz.), who has repeatedly forced Democrats to rewrite their tax plans — all the while saying little publicly about what she wants and why. Senate Democrats aim to pass the legislation next week, with the House planning to…
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