A former treasury secretary and outspoken inflation hawk slams Democrats opting out of closing a loophole for wealthy investors
- Summers trashed the idea of Dems allowing a loophole for rich investors to stay in place.
- He also appeared to take a swipe at Sinema, who counts the investment industry as her largest donors.
Senate Democrats are still riding high after passing the Inflation Reduction Act, a surprise $740 billion climate and spending package that rose from the ashes of President Joe Biden's nearly-dead agenda.
But the package underwent one notable alteration on the Senate floor: Senator Kyrsten Sinema, a key centrist in Democrats' razor-thin majority, nixed a tax provision targeting wealthy investors.
Originally, the Inflation Reduction Act would have further closed a tax loophole for carried interest. Some investors — especially those in private equity — receive their income as a share of profits from investments, which come in the form of assets. Those assets are then taxed at the lower, preferential capital gains rate. Even former president Donald Trump supported closing the loophole and succeeded in narrowing it. His 2017 tax law required that some investors to hold onto assets for three years before they can sell; the IRA would have extended that to five years.
But as Democrats neared the finish line on their expansive climate and tax legislation, Sinema handed hedge fund managers and investors two major wins. She defeated Democratic efforts to close the carried interest loophole. Then she secured an exemption for much of the private equity industry from the 15% corporate minimum tax.
"I cannot understand the argument that people who earn their living by investing for other wealthy people should pay taxes at half the rate of others. It just seems wrong to me," Larry Summers, former treasury secretary and a notorious inflation hawk, said in a statement to Insider. "For anyone who thought this was driven by merits, just study the patterns of campaign contributions by the major actors protecting this loophole and also look at how hard those benefitting from tax break have worked to preserve it."
It seems to be a swipe at Sinema. Individuals and organizations in the securities and investment industry donated $2.2 million to the Arizona Democrat since 2017, per data from nonpartisan campaign finance tracker OpenSecrets, the largest sum from any sector.
A spokesperson for Sinema previously told Insider that the Arizona Democrat pursued changes meant to protect small businesses in Arizona. "She has been clear and consistent for over a year that she will only support tax reforms and revenue options that support Arizona's economic growth and competitiveness," the Sinema spokesperson said.
Summers isn't alone in his criticism; even some wealthy investors blasted Democrats dropping the measure.
"Hats off to the P/E lobby!" Lloyd Blankfein, the former CEO of Goldman Sachs, wrote on Twitter. "After all these years and budget crises, the highest paid people still pay the lower capital gains tax on earnings from their labor. I agree their activity helps the economy, but so does the labor of truck drivers, teachers and construction workers!"
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