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Why Wall Street Celebrates Inflation Control Law Is Premature

Wall Street is quietly breathing a sigh of relief over the Senate's version of the anti-inflation law, but experts warn of a last-minute move to tax stock buybacks. It warned that the regulation could be reinstated. annoy investors.

The $740 billion energy and health spending bill was significantly reduced by several measures compared to previous versions that were expected to cost more than $800 billion. rice field. Most notably, the revised version does not crack down on the so-called "carry interest loophole."

A proposal to close the loophole — treat the income of the private equity and hedge fund giants as investment income and allow them to pay a 20% capital gains tax rate instead of a 37% personal tax rate — is 10 Raises $14 billion annually. One analysis of his in 2015 puts him at least $180 billion in 10 years.

In a little-known move early Sunday, lawmakers also introduced a provision that would impose his 15% minimum tax on private equity-owned companies whose annual profits exceed $1 billion. has withdrawn. Estimates predict that private equity shops could save an additional $35 billion.

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Senator Kristen Cinema (D-Arizona). Since 2017, she has raised at least $2.2 million in her private equity firms and their employees, including KKR and the Carlyle Group, and Carey has opted to tax share buybacks in exchange for eliminating loopholes for her interests. I suggested.

But tax experts warn that a new tax on share buybacks could become a "gateway drug" taxing all kinds of financial transactions. Preliminary estimates suggest that the new levy could cost between $70 billion and $124 billion. The 1% sales tax is nominal for now, but could very easily be raised if it goes into effect, a tax expert tells The Post.

"Wall Street was so focused on lobbying against the minimum corporate tax and the Global Intangible Tax (GILTI) that it basically allowed a buyback tax." Based in Washington. James Lucier, managing director of policy research firm Capital Alpha, told the Post.

"It's a matter of buying now and paying later," adds Lucier. “The excise tax on share buybacks could be problematic for M&A and sets a precedent for other financial transaction taxes that could be problematic in the future.”

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In the short term, this tax could accelerate buybacks by 2023.

"Billions of dollars in buybacks could accelerate by the end of the year," Great Hill Capital's Thomas Hayes told the Post. “We could end the year at a much higher level than most people thought just a few weeks ago.”

Other sources of income come from the minimum corporate tax rate of 15%. be The move, which targets big tech companies like Amazon, along with many multinationals from Exxon to Nike, brings in about $313 billion. , according to one Senate estimate.

A crackdown on prescription drug prices is expected to hurt pharmaceutical companies and save taxpayers an estimated $288 billion in Medicare spending. Additional funding given to the IRS is expected to bring an estimated $124 billion in chasing companies that underreport taxable income, but the action is disproportionately Expected to target small business owners.

Still, other key provisions on the Democrats' wish list — extending the 3.8% net investment tax to those earning $400,000 or more and earning $10 or more such as introducing a modified adjusted gross income or surcharge for those raising Millions of dollars a year have also disappeared.

"There's a reason there hasn't been a protest from Wall Street about this bill," a Hill aide close to the legislation told the Post.