Aug 3, 2022 - Politics & Policy

Sinema eyes changes to tax, climate portions of reconciliation bill

Kyrsten Sinema

Photo: Drew Angerer/Getty Images

Sen. Kyrsten Sinema (D-Ariz.) is eyeing changes to Democrats' $740 billion reconciliation bill — specifically increasing climate funding and restructuring the tax provisions — as the Senate moves rapidly toward final passage before the August recess, Axios has learned.

Why it matters: Sinema is the one senator potentially standing in the way of Democrats clinching President Biden's longtime goal of passing an ambitious package tackling climate change, health care and taxes — renamed the "Inflation Reduction Act of 2022."

  • That position gives her a huge amount of leverage as Democrats await a verdict from the Senate parliamentarian over whether the bill complies with the "Byrd Rule," which controls what provisions can be included in the budget reconciliation process.
  • The fact the negotiations were conducted entirely in secret between Senate Majority Leader Chuck Schumer (D-N.Y.) and Sen. Joe Manchin (D-W.V.) — catching Sinema by surprise — has left her space for an 11th hour intervention.
  • Sinema has so far refused to weigh in on whether or not she will support the bill until the parliamentarian renders her judgment on the measure.

What we're hearing: Sinema is looking at significantly beefing up the reconciliation bill's funding for droughts and water security in the Southwest, sources familiar with her thought process tell Axios.

  • She views the current $369 billion climate and energy portion of the bill as insufficient for addressing threat resiliency funding.

On taxes, Sinema has concerns with the structure of the 15% corporate minimum "book tax" and whether the burden could get passed down to employees, the sources said.

  • Sinema supports cracking down on tax avoidance, but has long voiced her opposition to closing the carried interest loophole.
  • She's concerned that the provision, which would contribute $14 billion toward paying down the bill's $740 billion total, could undermine economic competitiveness, the sources said.

Behind the scenes: Sinema has been meeting privately, both virtually and in-person, with key stakeholders in Arizona as she continues to work through her assessment of the bill.

  • Sinema last week visited Flagstaff, Arizona, where she met with local officials who are still reeling from recent flooding and a wildfire that ravaged the state.
  • Arizona is one of the fastest-warming states in the U.S., and the state's largest county, Maricopa County, has already hit a record for heat-related deaths this year.
  • "There are some who were surprised to learn Kyrsten was enthusiastic about the climate provisions last year, because they rightly consider her a centrist. But she's a Senator from Arizona, first and foremost," John LaBombard, Sinema's former communications director and SVP at ROKK Solutions tells Axios.

In a phone call Tuesday with Arizona's Chamber of Commerce, local business leaders and manufacturers discussed with Sinema what the proposed 15% corporate minimum tax and closure of the carried interest loophole would mean for Arizona.

  • The private equity industry, which has contributed heavily to Sinema, is lobbying her heavily on shooting down the carried interest portion.
  • "I remember last year, she was hearing feedback from small business owners, concerned about the potential implications of any tax policy changes, and how it might affect their capital investment streams,'" LaBombard said.
  • "She is somebody who errs on the side of caution when it comes to changing tax policies. ...  obviously, I think [their input] shaped where she is on the economic parts of this bill."

What they're saying: "What’s clear from our conversation is she’s taking a thoughtful and diligent approach as she considers her position on this legislation," Danny Seiden, CEO of the Arizona Chamber, told Axios' Hans Nichols.

  • "She was very interested in learning what specific impacts the tax provisions will have on Arizona manufacturers — and we believe she will consider these implications seriously as negotiations continue over the coming days.”
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