Sen. Kyrsten Sinema has been cozying up to Wall Street and the über rich for years


Opinion: Private equity’s defense of Kyrsten Sinema’s vote in the Inflation Reduction Act simply doesn’t hold water.

Dan Mahoney’s defense of Sen. Kyrsten Sinema’s actions to undermine pieces of the Inflation Reduction Act (IRA) is almost laughable (“Wall Street barons did not buy Sen. Kyrsten Sinema’s vote. Let’s set the record straight”).

The IRA originally contained a provision that narrowed a gaping tax loophole, known as carried interest, that allows ultrawealthy private equity and other fund managers to cut their tax bills nearly in half, giving them a lower top tax rate on their compensation than virtually all other working Americans. But Sinema held the legislation hostage until the provision was removed.

You’d be pressed to find another politician championing the carried interest loophole. Even radically anti-tax Republicans, including Donald Trump, find carried interest indefensible. In 2017, congressional Republicans voted nearly unanimously in favor of a Tax Cuts and Jobs Act provision that slightly narrows the loophole.

After all, how do you justify special tax breaks for compensation paid to ultrawealthy private equity, venture capital and real estate moguls, including several billionaires?

You really can’t – unless, perhaps, a personal financial incentive motivates you.

Sinema has had a long romance with high rollers

It bears noticing that one voice defending Sinema’s actions is a big-firm lawyer whose income is derived at least in part from private equity deals.

Mahoney objects to reporting by the AP suggesting Sinema, one of the top recipients of campaign contributions from the private equity industry, may have been influenced by nearly $1 million in contributions from the industry over the last year alone.

Influential voices: How Sinema, Kelly shaped the Inflation Reduction Act

That’s nonsense, that logic goes, because Sinema made her support for the carried interest loophole clear early last summer. We are to believe the massive flow of private equity, real estate and venture capital contributions to Sinema’s campaign coffers is a recent development.

It isn’t. Not only were the contributions flowing freely early last summer, Sinema’s romance with the high rollers of finance goes back to her days as a freshman representative serving on the House Financial Services Committee.

Are Sinema’s private equity campaign contributions directly connected to her votes? Perhaps not provably so. But appearances matter, and Sinema’s conduct verges on the obscene. How many other U.S. senators have taken a paid internship at a winery owned by a private equity titan, culminating in a weekend fundraiser at the same winery?

There’s a larger issue than a quid pro quo

Whether Sinema engaged in some sort of explicit quid pro quo with private equity donors is beside the point. Throughout her career, she has advanced the interests of the ultrarich, and in doing so, consistently acted against the interests of her constituents. In 2015, she voted to repeal entirely the federal estate tax, a tax paid only by the absolute richest, fewer than 1% of estates.

Ultimately, Mahoney resorts to the tired refrain about job creation to support carried interest, calling private equity an “unmatched engine” of job creation, while omitting that private equity also destroys jobs. Studies show that, overall, private equity kills jobs, rather than creating them.

Without special tax treatment for carried interest, we’re told, fund managers would “avoid risky or distressed” fund investments that create jobs. Presumably, private equity fund managers select investments that are best for their investors – the folks taking the real risk – not themselves.

Narrowing the carried interest loophole wouldn’t impact the taxes investors pay, just what fund managers pay on their compensation. If fund managers are serving the best interests of their investors, that shouldn’t change their investment strategy.

Private equity managers are not our saviors

There’s also the suggestion that fund managers would find different professions if they had to pay tax at the same rates others do. Really?

Stephen Schwarzman, who heads The Blackstone Group, one of the largest private equity firms, is worth more than $30 billion. Even if subject to the same tax rate as us commoners, it seems the after-tax reward from Schwarzman’s work still would have kept him in the game.

Mahoney’s logic is elusive. He touts the wonders of private equity, how it directs investment dollars to “potential medical, scientific, and technological breakthroughs.” Yet he credits that not to the investors making the often-high-risk investments or the entrepreneurs whose genius is behind the potential breakthroughs, but to the folks who connect the investors to the entrepreneurs – that is, fund managers.

Are we to believe our capital markets are so inefficient that the only way to make them perform is to single out this one group of glorified middlemen, who bring neither capital nor creative genius to the table, and give them a massive tax discount?

Perhaps, but that doesn’t make it true, and such a defense of Sinema just doesn’t hold water.

Bob Lord, a Phoenix tax lawyer and former congressional candidate, is senior adviser on tax policy at the Patriotic Millionaires. Reach him at bob@patrioticmillionaires.org.

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