Sinema Pays Off Her Donors

By Dick Morris on August 5, 2022

Senator Kristen Sinema (D-AZ) pretended to be upset at the tax increases in the Democratic reconciliation bill and feigned independence. But she was conning us all along.

She was really holding out to fulfill a corrupt bargain with her richest supporters and major campaign donors. At the expense of the average taxpayer, she held back her approval of the Democratic reconciliation package so her rich supporters could skate by paying minimal taxes. Her conduct was so odious that it makes even the Washington swamp look bad.

Her goal was to preserve the carried interest treatment of income earned by managers of hedge funds. The Democrats had eliminated this loophole and Sinema, doing the bidding of her financial backers, refused to agree to the Democratic bill unless carried interest was restored. This tax loophole costs the rest of us $14 billion and confers benefit on a few thousand very rich people.

Hedge fund investors who make investments that earn them money get to pay taxes on their winnings through the capital gains tax, usually paying only 20% of their earnings, a tax break from having to pay regular tax on earned income where the rate tops out at 37%.

They deserve this tax break. After all, they paid income tax on the money they invest so paying any tax at all on their winnings is really double taxation. But at least they have only to pay 20% not the full 37%.

But those who work as managers of hedge funds typically invest no money of their own at all. They are paid a straight salary by their hedge fund for managing the invested money.

But even though none of their own money is at risk, the “carried interest” tax loophole lets them pay only the capital gains tax rate rather than the rate on ordinary income.

It is a total giveaway and ripoff for the taxpayer. These managers have not already paid taxes on their investments since they haven’t made any. Their income should be in the same category as any other worker who is paid for his labor.

The carried interest loophole serves no public purpose and is a total payoff to a special interest.

Representing Arizona in the Senate, Sinema has lots of hedge fund managers in her state who likely give her massive amount of campaign money. And this is their quid pro quo. That Sinema made such a stink about the deletion of carried interest that she used her power to withhold her vote so the entire package would fail to get the needed 50 votes in the Senate was a total outrage and she deserves to be called out for it.

Carried interest has survived this long because it was protected by Senate Majority Leader Senator Chuck Schumer (D-NY). With Wall Street in his state, Schumer said it was his duty to protect hedge fund managers, his constituents. But this year, he gave in to pressure from the left of his party and went along with killing carried interest. His sudden enlightenment was immediately offset by Sinema’s selfishness and corruption.

It takes some talent to be more craven and corrupt than Schumer, but Sinema managed the task.

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