Cortez Masto, Rosen join Republicans in exempting investment firms from tax
(Photos: Ronda Churchill/Nevada Current; Ian Forsyth/Getty Images)
Nevada’s U.S. Senators Catherine Cortez Masto and Jacky Rosen say they were protecting small business and ensuring passage of the Inflation Reduction Act when they joined five other Democrats in voting with Republicans to exempt companies controlled by private equity and investment funds from the 15% minimum corporate tax approved by the U.S. Senate.
But some experts suggest the amendment, proposed by Republican Sen. John Thune of South Dakota and Democrat Kyrsten Sinema of Arizona, allows highly-paid investment managers to escape taxation and creates a loophole that could allow conglomerates such as Apple and Boeing to escape the tax.
“I don’t see how it helps a senator to show that she’s on the side of large private equity funds,” says Steve Wamhoff of the Institute on Taxation and Economic Policy, who says polling indicates most Americans think corporations should pay higher taxes, that high-income individuals should pay more taxes, and that most businesses do not need lower taxes. “That’s why the Trump tax law was not popular.”
The amendment passed 57 to 43, with Democrats Raphael Warnock and Jon Ossoff of Georgia, Maggie Hassan of New Hampshire, and Mark Kelly of Arizona joining Thune, Sinema, Rosen, and Cortez Masto.
The 15% minimum tax applies to companies whose average profits exceed $1 billion over the previous three years. The congressional Joint Committee on Taxation estimates the exemption for private equity and investment funds will cost the government $35 billion over the next decade. It will be replaced by extending for a year limits on the amount of losses that pass-through businesses can deduct.
“At least in the minds of Congress’ official revenue estimators, somebody is not going to have to pay the minimum tax now, because of the Sinema amendment,” Wamhoff said. “Presumably, that’s DC corporations that are owned or controlled by private equity funds.”
“Senator Cortez Masto supported a bipartisan amendment to ensure that the over 120 small- and medium-sized businesses in Nevada that receive some financing from large companies are not unintentionally taxed,” said Lauren Wodarski, a spokesperson for Cortez Masto.
“As part of a compromise to protect smaller businesses from unintended taxes that were meant to be for only corporations making more than a billion dollars per year in profits, and to ensure the final passage of the historic legislation, Senator Rosen voted for the Thune and Warner amendments,” a spokesperson for Rosen said via email.
But it’s not the corner bakery or shoe store that’s attracting private investment money – it’s the bakery or shoe store with a chain of locations.
“I think it would be very difficult for the senators to explain to the public because we’re talking about a corporate minimum tax that applies to companies that have more than $1 billion of profit,” says Wamhoff, adding it’s the fund manager, not the small business, paying the tax.
“A Sinema spokeswoman said several Arizona small businesses, including a plant nursery, had raised concerns,” the Washington Post reported Monday.
The identity of the companies is unknown, but a Google search reveals a private investment firm “announced a $775 million transaction” with Arizona-based Moon Valley Nurseries last year. The company has 18 farms and 34 locations in California, Arizona, Texas and Nevada, according to a news release. The company’s president, Les Blake, lives in Las Vegas.
Wamhoff says a large business entity with subsidiaries could take advantage of what he says is a loophole created by the amendment and avoid the minimum corporate tax by setting up the same partnership structure as an investment firm.
“It’s just really difficult to understand a policy rationale,” says Wamhoff. “Or, really, a political rationale.”
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