(Bloomberg) -- Democrats agreed on a revised version of their tax and climate bill, dropping a provision that would have narrowed a tax break for carried interest, altering a 15% minimum tax on corporations and adding a new 1% excise tax on stock buybacks.

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Senator Kyrsten Sinema, a pivotal Democratic vote in the 50-50 Senate, said Thursday night she’ll back the revised plan, removing one of the last hurdles for legislation carrying core components of President Joe Biden’s domestic agenda.

“We have agreed to remove the carried interest tax provision, protect advanced manufacturing, and boost our clean energy economy in the Senate’s budget reconciliation legislation,” the Arizona Democrat said in an emailed statement. “Subject to the Parliamentarian’s review, I’ll move forward.”

Biden hailed the agreement, calling it “another critical step toward reducing inflation and the cost of living for America’s families” and urging the Senate to pass it quickly.

Senate Democrats are still waiting, however, for the parliamentarian to scrutinize the legislation to determine whether parts of the bill meet the chamber’s strict budget rules. Elements like domestic content requirements for cars eligible for electric vehicle tax credits, caps on insulin out-of-pocket costs and penalties for drug companies raising prices higher than inflation could be struck.

Senate Majority Leader Chuck Schumer said in a statement that the revised legislation will be brought to the chamber floor on Saturday, setting the bill on the way to passage with a simple majority vote. He said he believes all 50 members of the Democratic caucus, including West Virginia Senator Joe Manchin, would support the revised bill. Schumer negotiated the previous version of the bill with Manchin.



The stock buyback provision was on the table during months of talks between Schumer and Manchin but was dropped in favor of the 15% minimum tax on large companies. Manchin has repeatedly said that the bill does not have any new tax increases and only aims to stop tax avoidance. The new stock buyback tax goes counter to that approach.

Manchin’s office did not comment Thursday night.

Stock markets appeared to take the news in stride, with futures on the S&P 500 Index rising 0.3% after the official close of US exchanges. Still, the buyback tax is unlikely to be welcomed by investors, said Tina Teng, an analyst at CMC Markets Plc.

“Considering a large portion of the market rally is supported by companies’ share buyback programs this year, the bill will definitely have a negative impact on stock markets if it passes,” Teng said. “To avoid the tax, companies may choose to increase dividends to shareholders.”

The deal struck to get Sinema on board would pare back the original 15% corporate minimum tax proposal by creating an exemption for depreciation tax deductions. This change was urged by manufacturers.

National Association of Manufacturers Chief Executive Jay Timmons said in a statement that the group is “glad to hear that accelerated depreciation provisions are removed, but we remain skeptical and will be reviewing the revised legislation carefully.”

The hole created by this new exemption as well as by nixing the carried interest provision would largely be made up for with the 1% excise tax on stock buybacks, according to people familiar with the talks.

The stock buyback tax, however, is expected to generate less than the $124 billion estimated when the House passed it last year.

One of the other demands made by Manchin, who has played a central role in the months of negotiations over Biden’s strategy, was that the legislation cut the deficit.

Other revenue would come from stricter enforcement of tax compliance by the Internal Revenue Service, repealing a Trump administration restriction on prescription drug rebates, generating $122 billion, and by allowing Medicare to negotiate the cost of high-priced drugs, which generates $102 billion.

Removing the measure to raise taxes on private equity managers from the bill means that the legislation, which Democrats initially envisioned as a way to overhaul the tax code, won’t include any new taxes on wealthy individuals. Biden in the first proposals for this bill called for hundreds of billions of tax increases on rich Americans, ranging from nearly doubling the capital gains tax rate to much stricter inheritance taxes.

Sinema said in a statement that she will continue talks with Senator Mark Warner, a Virginia Democrat, about separate legislation to narrow carried interest, a tax break for investment fund managers.

“Following this effort, I look forward to working with Senator Warner to enact carried interest tax reforms, protecting investments in America’s economy and encouraging continued growth while closing the most egregious loopholes that some abuse to avoid paying taxes,” Sinema said.

The fate of that effort remains murky, given a possible Republican takeover of one or both chambers of Congress, which could eliminate the ability of Democrats to pass such a bill after January.

The legislation as drafted before the talks with Sinema would spend $370 billion on climate change measures and energy programs while extending Obamacare premium subsides for three years. Sinema mentioned a boost to clean energy through her efforts but details on that were not immediately available.

Democrats have been eager to finish work on the legislation, even though it’s been drastically scaled back from Biden’s original vision for an expansive tax and social spending package that would advance the party’s climate goals.

“We have a climate deal that is equal to the moment,” Democratic Senator Brian Schatz of Hawaii tweeted. “This is the fight of our political generation, so this isn’t over, but this is an ambitious, smart, credible start. I’ve never felt so optimistic.”

(Adds markets and analyst quote from 9th paragraph.)

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