Interest loophole survives another political battle


“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 offered little explanation of why she considered it so important to preserve the tax treatment of deferred interest. She said she plans to work on legislation with Sen. Mark Warner, Democrat of Virginia, to close the loophole. But unless the legislation is included in the current package, which is being fast-tracked through a murky budget process, any reform will require the support of at least 10 Republicans.

“I think we’ve come to an agreement that there are areas where there has been abuse,” Mr Warner said in an interview, adding: “I’m disappointed it hasn’t been included in this bill, but I look forward to working with Sen. Sinema — and others — to see if we can fix this.

In a statement Thursday, Ms Sinema said: ‘We have agreed to remove the deferred interest tax provision, protect advanced manufacturing and boost our clean energy economy in the Senate Budget Reconciliation Legislation. .”

Emily Cochrane contributed report.