The Ongoing Mystery of Sinema
Her price to sign on to the Inflation Reduction Act was, well, odd.
Via the NYT: Sinema Agrees to Climate and Tax Deal, Clearing the Way for Votes.
To win Ms. Sinema’s support, Democratic leaders agreed to drop a $14 billion tax increase on some wealthy hedge fund managers and private equity executives that she had opposed, change the structure of a 15 percent minimum tax on corporations, and include drought money to benefit Arizona.
[…]
Ms. Sinema insisted on the removal of a provision that would have limited the preferential tax treatment of income earned by some wealthy hedge fund managers and private equity executives. Democrats instead added a new 1 percent excise tax that companies would have to pay on the amount of stock that they repurchase, said one Democratic official, who disclosed details of the plan on the condition of anonymity.
[…]
Democrats also agreed to a request by Ms. Sinema to include billions of dollars to combat droughts, according to officials briefed on the emerging plan, something that is crucial to Arizona as it suffers from a devastating megadrought. They were expected to restructure the 15 percent minimum tax on corporations to make it less burdensome on manufacturers. Earlier this week, business leaders in Arizona appealed directly to Ms. Sinema to simplify that proposal, which was included in part because she had resisted increasing tax rates as part of the plan.
The horse-trading for a state-centric need (the drought relief) is classic legislative activity that makes a ton of sense. But (and I know I am far from the first to make this observation), the insistence on taking out the carried interest rule is just, well, weird. (Although suggestions that it is linked to campaign contributions make it potentially classic legislative activity of another sort).
And this wasn’t the first time she made such a move (as the NYT‘s Dealbook newsletter noted, A Tax Loophole’s Powerful Defender).
She helped prevent a similar measure from being included in the Build Back Better bill last year. But there appears to be little public record of Sinema discussing why she supports special tax treatment for carried interest. According to a search of the Congressional Record, Sinema has apparently never uttered the phrase “carried interest” in a public legislative session.
All of this continues to be odd behavior from a Senator who emerged into politics via the Green Party. Yes, her state is purple, but as I wrote a while back, her behavior does not seem to comport to some strategy of moderation. Indeed, she seems to be doing a really good job of annoying her own base back in AZ.
I suppose the cynical interpretation is the correct one: she is looking to figure out what her post-Senate life will look like and making friends with hedge fund managers is perhaps a good strategy. I have a hard time seeing her re-nominated with the Democratic Party at the moment.
And before anyone proffers party-switching theories, not only in the current climate is that likely a strategically bad idea (after all, why would Republican primary voters want a reject Democrat when they can have one of their own*–not to mention nominating her would likely mobilize AZ Democrats to come to the polls to vote against her, not for her), but handing Biden a big legislative win is not the way to curry favor for some future GOP-ward flip.
Now, could I see her going full right-wing media type at some point? Sure.
But one thing is for certain, she is one of the oddest members the Senate has seen in a while. Manchin, which whom she has been paired of late in the press, is far easier to understand than she is.
*If we assume that the AZ GOP primary base is mostly MAGA, I am having a hard time seeing them going all-in on the former Green Party, bisexual Sinema, especially, as noted above she voted more than once to give Biden big legislative victories, despite all of her weird opposition. Remember that any 50-50 vote that went the D’s way required Sinema’s vote. She also twice voted to convict Trump in his impeachment trials. Party switching is not a long-term solution for her. Maybe, maybe she does it to finish out her term if the GOP wins a majority in the Chamber in 2022 or 2024. But is it is not something that is going to get her a second term.
In the immortal words of Deep Throat, “Follow the money.”
I honestly don’t understand what possible non-rent-seeking rationale existed for the rule to begin with. I can justify treating investment income differently from salary, given the risk component. It makes no sense to treat salary earned by managing other people’s money differently from, well, salary.
But exactly as Michael Reynolds has accurately noted. The drought relief (which may itself be a bad idea however unavoidable it is) is for her, may I say, “beard” constituency while the carried interest relief is for her actual one.
Her start in the Green Party is also just a manifestation of our “weak” party system–anyone can align with whatever party they want whenever it suits them. A European Green Party might never have needed to soil itself with her membership and a European version of the Democrats certainly wouldn’t have been likely to let her join.
A Corporatist Party on the other hand… 😉
@Just nutha ignint cracker: While I obviously endorse the weak party observation, it still strikes me as a rather counter-intuitive route (to put it mildly) to go from Green to pro-hedge fund as part of some cunning plan.
@James Joyner: “I honestly don’t understand what possible non-rent-seeking rationale existed for the rule to begin with.”
Sure, but that’s only BECAUSE THERE ISN’T ONE. It was government of the rich, by the rich, and for the rich from the very start.
@Steven L. Taylor: I wasn’t intending to imply that it made sense, though from a standpoint of “getting your foot in the door,” it may well count as a “by whatever means are necessary” (available?) move. She’s a strange combination–“a mystery wrapped in an enigma” and yet strangely transparent at the same time.
Here’s a pretty positive picture of Sen Sinema, courtesy of AP:
Sinema gives her nod, and influence, to Democrats’ big bill
Some selected texts:
@Scott:
Ha. I see AP didn’t cite her approval rating with Arizona Democrats:
At least the similarly-unpopular Mr. Biden can still win a primary. What’s Sinema’s path? Does Mark Warner have influence in Arizona?
She will make a great Wall Street lobbyist post-2024, tho.
I appreciated this article in NYT Business yesterday. It’s unusually blunt about the uselessness of the carried interest loophole and about lobbying money being responsible for it’s continued existence.
It also, if you read far enough, details that what was at stake here wasn’t the death of the loophole, but a modest, fairly technical, reduction,
Lobbying money wins again. We talk about the numerous anti-democratic aspects of our system, but the root problem is money.
@DK: And it’s pretty certain that Wall Street lobbyist pays at least as well as US Senator, even allowing for “honoraria” and such.
@gVOR08: Be careful! Quoting The Bible can ID you among the White Supremacists. 😉
@James Joyner: The original usage of carried interest I am aware of was in US venture capital industry in the 1970s as a incentive compensation mechanism for high risk venture financing on long-term equity investment (and the pecularities of partnership structures). It is a structure – with various tax treatments globally -used globally.
The extension of this to hedge funds doing short-term speculative trading principally… well I think one struggles to find anyone even in the industry who would defend openly. Similarly for the buyout private equity world of the Blackstones and the KKRs.
I would say there was a colourable argument in past decades relative to venture / small cap PE and where high-risk early to growth start-up equity investment with Carried actually at risk (the standard in VC normally is passing a Hurdle rate of net IRR on portfolio exit, usually 8% +/-, for portfolio, sometimes in addition to a full return on principal). The extension of holding period in the bill to 5 yrs would have been in keeping with such logic (depending on mechanics, of course in tax the devil is always in the details).
as linked NYT arty says
the basis of such pitches is on the small PE (small cap) and VC (which in investment structure mechanics there is colourable argument given the economics of small cap and early stage equity investment, but then should logically be limited to that, but…)
For Hedgies…. no defence is really possible at all.
@gVOR08: Afraid that the article really doesn’t give any operational sense of the usefulness or not in investment terms – other than the politics and the lobbying.
For better or worse, Journo economic and financial innumeracy – the price of having language and not maths people – combined with the real arcaneness of the actual operation of Carried Interest leads to a disorted image of the lobbying being pure corruption while (having seen the actual stuff years ago) there is quite the well-honed statistical pitches focused on Small Biz and Venture financing. Via such opening the entire unlisted equity funds industry rams through (lest you think this is a defence, it is not, it is an explanation of the bad partial presentation, Blackstone and KKR and the Hedgies exploiting the tax tool really has no good justification).
@Scott: she sounds like she prefers deal structuring to public politiking.
@James Joyner:
But special income classifications to reward some interest group is a fine old American tradition. The hardest part of preparing our tax return is divvying up the income into all the right piles.
@Michael Cain: For historical clarity, Carried Interest was a structure thought up to use already existing forms, it was not a special classification to reward. Insofar for decades it was quietly a structure used by venture capital funds, went unremarked. The abusive expansion made it the object of attention (although usually poorly understood)
So, what is showing at the cinema this week?
I find Sinema insufferable, but I also acknowledge the possibility that she sincerely believes she is acting in the best interests of her state (she doesn’t seem to recognize any wider responsibility). I’m not so deeply cynical that I automatically conclude every politician acts out of calculated self-interest (nor naive enough to reject the idea that many do).
@James Joyner:
Re: Carried Interest – My favorite sci-fi writer and generally smart person Cory Doctorow wrote a very good thread on twitter a while back:
https://threadreaderapp.com/thread/1387799416468230146.html
@DK: Yeah she’s burned all her bridges (and friends) so I expect her to “retire” to a lucrative lobbying job or something of that sort. She’s certainly done a lot of heavy lifting for people with lots of money and I’m sure they’ll take care of her.
I think she prefers to play small ball.
From Mother Jones: From Radical Activist to Senate Obstructionist: The Metamorphosis of Kyrsten Sinema
@Ken_L:
Part of why I find Sinema an enigma, is that I can’t (unlike with Manchin) connect her behavior to the interests of her state. I see no particular reason why protecting hedge fund managers is an AZ-centric move.
Moreover, I can’t connect her behavior to an electoral calculus.
@Paul: You would be well advised not to take your understandings of financial structures from SciFi writers, any more than you would from a Chemistry Prof, as mish-mashes of half-understood informatoin, assertion, and just wrong historical points … are not genuine information, they’re rather more like Fox Feelings-as-news infotainment.