Congressional negotiators were considering a package of tax breaks Tuesday that would add as much as $450 billion to the federal budget deficit over the next decade, wiping out most of the revenue gains President Obama won from Republicans just two years ago.
The package could grow even larger if Democrats succeed in persuading Republicans to tack on additional items sought by the White House: Permanent expansion of the child tax credit and a popular tax break for working families, which together could boost the cost by nearly $100 billion.
Aides in both parties said negotiators had hoped to announce a deal as soon as Tuesday afternoon. But snags emerged, including a threat from the White House to reject the developing legislation if it did not include the two provisions.
“The President would veto the proposed deal because it would provide permanent tax breaks to help well-connected corporations while neglecting working families,” White House spokesperson Jennifer Friedman said in a statement.
Advocates for deficit reduction were dismayed, noting that the package would erase much of the $600 billion tax increase on the nation’s top earners that Democrats fought hard to obtain during the 2012 “fiscal cliff” battle.
“It’s shocking. It’s Christmas-tree legislation for Thanksgiving,” said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget. “They’re just adding more and more for every constituency — with nobody arguing that the price should be a consideration.”
At issue is a hodgepodge of temporary tax measures that expired this year and are routinely revived and extended by Congress. Senate Democrats had been pressing for another two-year extension that would cost about $85 billion.
However, House Ways and Means Committee Chairman Dave Camp (R-Mich.), who is retiring in January, insisted that lawmakers jettison some of the measures as a first step toward comprehensive tax reform.
Provisions with clear economic benefit — including the research and development credit for businesses — should be made permanent, Camp argued. Others, such as breaks for NASCAR tracks and Puerto Rican rummakers, would be permitted to fall by the wayside.
Late Monday, aides in both parties said, Camp made Senate Democrats a carefully crafted offer that appeared to break the logjam: All of the provisions would be extended through 2015 — NASCAR, rum and, notably, an economic crisis-era provision that lets homeowners exclude debt forgiven by their banks from their income.
Meanwhile, a few provisions would be made permanent — the research credit, for starters, and it would be expanded to make it more useful to start-ups. Also, the deduction for state and local sales tax in states that do not impose an income tax, such as Texas, Florida and Nevada, would be permanent. That idea was intended to appeal to Senate Majority Leader Harry M. Reid (D-Nev.).
Camp also proposed to make permanent a few favorites of Sen. Charles E. Schumer (D-N.Y.), a member of the Senate Democratic leadership and the tax-writing Finance Committee. They include the American Opportunity Tax Credit, which provides a $2,500-a-year deduction for college tuition, and a provision that ensures mass-transit commuters get the same tax breaks as workers whose employers provide parking.
While the offer piqued interest among Senate Democratic leaders, it sparked grumbling late Monday at the White House, where officials complained about both the price and the failure to include the expanded child tax credit and the abolition of the marriage penalty in a tax credit for working families known as the Earned Income Tax Credit. The expanded breaks, first enacted in the 2009 stimulus package, are due to expire in 2017.
“There are reports today that Congress may be considering a potential deal on extenders that would do very little for working families and would be fiscally irresponsible,” Treasury Secretary Jack Lew said in a statement Monday. “Any deal on tax extenders must ensure that the economic benefits are broadly shared.”
With the veto threat Tuesday, Friedman underscored the administration’s displeasure.
A senior Democratic aide said it was not clear whether talks would continue Wednesday or pick up when Congress returns to Washington after Thanksgiving.