Senate Democratic leaders appear to have abandoned the push for a deal with Republicans that would have permanently extended a bunch of tax breaks, after a revolt from Senate liberals and a veto threat from President Obama. Liberals and the White House had argued that the slate of tax breaks Senate Dem leaders had been negotiating were skewed towards business and left out provisions that would have helped working Americans — permanent extensions of the Earned Income Tax Credit and the Child Tax Credit.
The question is, Now what? The argument this has set in motion — one that pitted the liberal and more moderate wings of the party against each other — is not going away, and may spill over into the much broader fight to come over tax reform, which will unfold once the GOP takes total control of Congress. This little dust-up may merely be a prelude to that battle.
Here’s an interesting development on this front: A spokesman for Harry Reid confirms that he will insist that extensions of the EITC and CTC — a top priority of liberals — must be part of any future negotiations over tax reform. Reid spokesman Adam Jentleson tells me:
“Senator Reid would oppose any tax reform deal that doesn’t include extensions of the EITC and the CTC.”
The broader question raised here is this: Can the Democratic Party and the president remain united behind a broad set of fiscal principles and priorities once bigger negotiations begin next year with the new GOP controlled Congress over a broad overhaul of the tax code? President Obama is said to see broader tax reform as one area where compromise is possible.
While the prospects of actually getting a tax reform deal with Republicans seem dim, progressives may want to start turning their attention to making sure that any such deal protects their priorities, such as the EITC and the CTC.
To recap: Last week the White House threatened to veto an emerging compromise that would have permanently extended a series of expiring tax breaks that taxpayers will not be able to claim, absent an extension. The breaks, which would have totaled $440 billion, were heavily skewed towards business, and did not permanently extend the EITC or CTC for the working poor. The Center on Budget and Policy Priorities lambasted the idea, noting that its tax breaks were not paid for, making even deeper cuts to government programs in the name of deficit reduction more likely later, and claiming it would benefit high-income people while making the expiration of the EITC and CTC more likely, pushing more low income people into poverty.
Senate liberals — led by Senators Sherrod Brown — and the White House had pushed back hard on the plan, and the veto threat torpedoing the deal suggested the left wing of the party had won a round.
But Senate Democratic leadership aides are reacting angrily to this depiction of what happened. They claim any short term deal would have secured some benefits, such as an extension of a tax credit bringing relief to families of higher education students, and that the battle over the EITC and CTC can still be picked up next year, when negotiations over tax reform begin in earnest.
Meanwhile, a deal that would temporarily extend all of the tax breaks — for a couple of years — is still a possibility, but a permanent extension looks all but dead.
Senator Sherrod Brown, who was instrumental in rallying Senate liberals against any permanent deal that didn’t include extensions of the EITC and CTC, says that Democrats drew a line that was necessary in advance of the coming fights with the GOP-controlled Congress.
“If Republicans are going to go back to more tax breaks for corporations and tax cuts for the richest Americans, we’ve got to stand strong and emphasize working families getting more of a break than they’re getting,” Brown told me. “Republicans need to find out that Democrats will draw a line and say No. We’ve showed that, and I think come January, we’ll show it again.”