After Republicans won control of the new Congress that will be seated in January, it quickly became clear that the next two years would be marked by conflict between GOP lawmakers and a Democratic president. But not many people expected a full-scale showdown to start taking shape before Thanksgiving.
That, however, appears to be exactly what’s coming as the House and Senate negotiate over a bill to renew various tax breaks that expired at the end of 2013.
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The breaks are generally referred to as “tax extenders” because for years they have been passed as temporary extensions of various tax breaks rather than codified as permanent law. They include a “Research and Experimentation” deduction for corporations, investment deductions for small businesses, deductions for charitable contributions made by companies, and dozens of other smaller, targeted breaks for businesses. At the individual level, they include deductions for state and local sales taxes, as well as expansions of the Earned Income Tax Credit and the Child Tax Credit both of which are scheduled to expire in 2017.
Many of the extenders need to be renewed before the end of the year, and made retroactive, if they are to apply to tax returns filed for 2014. Over the past several days, details have been leaking out about a proposed deal between Senate Majority Leader Harry Reid (D-NV) and representatives of House Speaker John Boehner (R-OH).
Those details, while generally positive for the GOP, have both Democrats and non-partisan budget hawks furious.
Multiple media reports Tuesday suggested that the shape of the deal being considered would make a number of the largest business breaks, including the R&D credit, the charity deduction, and others, permanent. The big Democratic priorities, particularly the EITC and Child Tax Credit provisions, would still be allowed to expire in two years. The estimated cost of the deal is between $440 billion and $500 billion over 10 years, and crucially, is not paid for by any budget offsets or tax increases.
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White House Deputy Press Secretary Jen Friedman on Tuesday said that the president would veto a bill that made the corporate tax breaks permanent without breaks for middle- and lower-income taxpayers. “The president would veto the proposed deal because it would provide permanent tax breaks to help well-connected corporations while neglecting working families,” she said.
Democratic-leaning activists complained that Reid appeared to be giving up key bargaining chips by allowing the business-friendly tax breaks to be made permanent while agreeing to allow the EITC and child tax credit to expire as scheduled.
The tax extenders have always moved as a group because while the measures contain things both sides hate, they collectively also offer the legislative sugar both sides need to get a deal done. Democrats worry that by giving away things like the R&D tax credit, and small business tax breaks, they will have little leverage with Republicans when the EITC and child credit expire in two years.
“It’s totally tilted toward the priorities of House Republicans,” said a senior Democratic congressional aide. “You’re going to see a lot of opposition to this.”
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The degree of opposition among congressional Democrats is actually a key factor in the debate because of the president’s veto threat. People familiar with the negotiations say that both sides are discussing additions to the bill that would sweeten the deal enough for Democrats to support overriding a presidential veto.
The prospect of such a deal was little comfort to deficit hawks like Maya MacGuineas, president of the Committee for a Responsible Federal Budget, who also pointed out that the White House’s veto threat seemed to hinge on President Obama’s preferred tax extenders being made permanent rather than being rooted in concerns about adding to the debt and deficit.
“This throws fiscal responsibility completely out the window,” said MacGuineas. “It looks like it’s just a combination of every side asking for and getting what they want in terms of making tax breaks permanent, without a minute’s thought given to how to pay for them.”
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People familiar with the debate say that Boehner is willing to bring a bill to the floor as early as next week.
Update: This story was corrected at 11:45 a.m. on Wednesday morning to indicate that the EITC and child tax credit extensions are not scheduled to expire until 2017.
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