Defying the White House and a yearslong push for more revenue, Senate Democrats are on the verge of passing an $85 billion grab bag of tax cuts with no plans to pay for them.
The question now is whether President Barack Obama will stick to his guns and threaten to veto the bill — picking an intraparty fight in an election year with control of the Senate at stake.
Ask a liberal Senate Democrat about the deficit-financed “tax extenders” package headed for the floor next week , and you’re likely to hear a refrain that could have been uttered by a Republican — some tax cuts shouldn’t have to be paid for because they pay for themselves. Or extending an expired tax cut shouldn’t count — never mind those pesky pay-as-you-go rules.
But the White House's budget proposed a corporate tax package that would generate revenue to help pay for its transportation bill, not another tax cut that would inflate the deficit.
“Our position remains unchanged and we continue to believe the extenders should be paid for,” an administration official told CQ Roll Call.
(Update 5/13 : The White House declined to issue a veto threat on the bill .)
The administration hasn’t yet threatened a veto of the Senate measure, but the Office of Management and Budget issued a sternly worded veto threat over the House GOP’s tax extender bill resurrecting the research and development tax credit and making it permanent, at a cost of $156 billion over the coming decade. Some 62 House Democrats defied their leaders and the president’s veto threat to help pass the bill Friday with a potentially veto-proof majority.
It’s not the tax break Obama opposes — his budget would revive it too. It’s the not-paying-for-it part. But that doesn’t bother many of his fellow Democrats.
“There are certain tax breaks that really help this economy create jobs and in the end bring in more revenues because they’re there,” said Sen. Barbara Boxer, D-Calif. “Such things as research and development tax credits. So important to have that investment in new products, new ideas and then it eventually helps. Such things as renewable energy tax credit [are] terrific. ... There are some of them that are important enough that they pay for themselves in other ways.”
Asked about the White House’s veto threat of the House’s permanent R&D tax credit, Boxer said that was up to the White House.
Extending the credit "should be done," she said.
“And I think again, it depends on the break. Some of these breaks are really important. For example, people getting a break for sending their kids to college if they’re in the middle class. This eventually means we get more money because kids get better jobs, so it depends on the breaks," Boxer said. “The answer is some should be paid for, and some pay for themselves.”
Like R&D? “Like R&D. That’s where I am.”
Sen. Barbara A. Mikulski had similar thoughts.
“I think that the tax extender package has many things in it that really generate jobs and revenue,” said the senior Democrat from Maryland. “For example, the research and development tax thing. So I am for the extender package without an offset. ... In my state, with infotech, biotech, cybersecurity, that R&D is really, really important.”
Sen. Benjamin L. Cardin, D-Md., a member of the Finance Committee, suggested extensions shouldn’t have to be paid for.
“When you are dealing with long-term current policy, there is no need to offset those types of costs,” he said. “To the extent that you change the policy absolutely it should be offset.”
But, “if it’s just extending current law, whether for two years or permanently, I don’t have a problem doing (that) without offsets,” he said.
That puts Cardin at odds with the White House, which warned in its House veto threat that permanently reviving all of the expired tax breaks would cost about $500 billion over a decade, undoing most of the revenue Obama and Democrats extracted out of high-income earners in the fiscal cliff deal.
It wasn’t so long ago that Democrats were united on pay-as-you-go rules requiring tax cuts as well as new spending to be offset with tax hikes or spending cuts elsewhere. And Democrats and the White House spent much of last year fruitlessly demanding higher tax revenue as part of a deal to end the sequester. But after the Senate passed a paid-for unemployment extension, which also expired in December, the tax breaks seem to live outside the rules.
House Republicans actually were forced to go back to the Rules Committee for their bill because they forgot to waive the pay-as-you-go rule the first-time around.
Like the White House, House Democratic leaders torched the Republican tax cut extension for adding to the deficit, particularly when Republicans have refused to pass a paid-for bipartisan extension of unemployment benefits.
The Senate bill has some advantages from the perspective of many Democrats and the White House. Most importantly, it’s not permanent. Finance Chairman Ron Wyden said in an interview that his bill, named the EXPIRE Act, is a “bridge” to a tax policy overhaul — and that senators would deliver colloquies on the floor to that effect.
"I made it clear that on my watch this is going to be the last extender bill," Wyden said.
"In a literal sense, this tells everybody here's where we are for two years, and I said my goal ... is this gives people some certainty about where the landscape is going to be."
Wyden is working with Sen. Orrin G. Hatch of Utah, the ranking Republican on the Finance Committee, to find a way to pass the bill on the floor, and he said there were no dissenters on the powerful panel, which passed the package on a voice vote.
"I kid colleagues ... sometimes it seems around here you can't get people around here to order a Coca-Cola, let alone get a unanimous vote on a significant piece of tax legislation," he said.
That’s because there’s something for everybody in the tax package, with more than 50 tax breaks ranging from the deductibility of state sales taxes and mortgage forgiveness important to states like Nevada and Florida to breaks for the owners of racehorses, NASCAR race tracks and producers of Puerto Rican rum .
Wyden noted: "These kinds of bills, historically have not been, you know, offset. So you start with that." He said a number of the tax extenders are “hugely important for the American economy and particularly the innovation economy."
"The research and development credit basically helps innovation jobs because the companies are allowed, in effect, to write off the wages," Wyden said. "This goes right to the heart of trying to encourage ... innovation jobs.”
When asked if the White House veto threat of the House permanent R&D extension would result in an effort to offset the Senate package, Wyden said the price tags of the bills differ.
Sen. Dean Heller, R-Nev., told CQ Roll Call he is considering an effort to attach an unemployment extension to the package .
Cardin also said he wished the unemployment insurance extension had not been offset, but he argued that not renewing current tax policy would do more harm to the economy and jobs.
Cardin's close friend, House Minority Whip Steny H. Hoyer, D-Md., rebuked fellow House Democratic members who voted for the permanent R&D credit without an offset “This totally undermines any claim of fiscal rectitude. … It is such a fraud,” Hoyer said. “I talked to some members … who said, ‘Well I’m for the R&D tax credit.’ Well I’m for it too, but I’m for fiscal responsibility.”
Senate Democrats predicted the extenders package will pass, but it could still face problems on the floor, particularly from Republicans wanting to vote on amendments — something that has scuttled any number of bills in the Senate. The Club for Growth also has come out strongly against the bill as a collection of special interest loopholes that represent spending in the tax code.
Hatch is hoping amendments can be kept to a minimum.
"I'm not very excited about having amendments on the extenders package and neither is the chairman," Hatch said. "On the other hand ... I don't know that you can foreclose amendments."