Interest loophole survives another political battle
Some analysts were skeptical from the start that lawmakers would actually change the tax treatment of deferred interest in the final bill. Although it became a high-profile target, the change Democrats sought would have generated little tax revenue compared to other provisions of the legislation, known as the Inflation Reduction Act.
“Interest has become the MacGuffin of the IRA saga,” said James Lucier, an analyst at Capital Alpha Partners, a political research firm in Washington, describing it as a literary device that writers include simply to make plots more interesting. “The MacGuffin diverted attention from the really important things that happen in the story to make the surprising conclusion even more surprising at the end.”
On Friday, some progressive political pundits ignored the elimination of the deferred interest provision, which they saw as a modest improvement over the current law.
“The proposal that was in the bill until last night made a technical adjustment to the holding period for assets eligible for carried interest treatment,” said Jean Ross, senior fellow at the Center for American Progress, a group of liberal research in Washington. “A better approach would be to tackle the problem head on and say that remuneration for the management services of an investment fund should be taxed like labor and subject to ordinary tax rates.”
Ms Ross added that she was happy with the addition of the stock buy-back tax, which some Democrats and their allies have long supported, arguing that companies are spending too much money to buy back their own shares, rather than invest in research and development or give raises to workers.
Ms Sinema herself said little about the legislation or why she felt it was so important to preserve the tax treatment of deferred interest.
“We agreed to remove the deferred interest tax provision, protect advanced manufacturing and boost our clean energy economy in Senate budget reconciliation legislation,” she said in a statement Thursday.
Alan Rappeport reported from Washington and Emily Flitter from New York. Emily Cochrane contributed reporting from Washington.