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There’s still hope for large, year-end tax package

House Ways and Means Committee Chairman Kevin Brady (R-Texas) said negotiations on a large tax package would continue even if the House moves a scaled-down bill first. (AP Photo/Charles Dharapak, File)
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Negotiators are closing in on an agreement over a large package of tax breaks for businesses and individuals, but opposition from House Democrats could thwart a deal and Republicans are preparing to move a scaled-down bill as a fall back plan.

So far none of the negotiators have walked away from the talks, but House Democrats led by Minority Leader Nancy Pelosi (D-Calif.) are holding out on supporting the deal betting their votes will be needed to pass the legislation. Pelosi and other House Democrats are trying to use this leverage to force changes, primarily an expansion of the child tax credit, to a deal that has been months in the making.

“I know leader Pelosi feels strongly about the child tax credit and she has made that point, but they’re still negotiating,” said Senate Minority Whip Dick Durbin, (D-Ill.)

Durbin said it would be difficult for Senate Democrats, who largely support a broad tax deal, to vote for a package that passes the House without the support of Pelosi and her caucus.

Here the eight terms you need to know in order to understand what Congress is debating. (Video: Sarah Parnass/The Washington Post)

The discussions focus on the so-called tax extenders, a list of about 50 breaks that Congress routinely extends for a year or two at a time. Republicans have been pushing to permanently extend some of the business breaks and Democrats are agreeable so long as some tax provisions targeted at low-income workers are also made permanent and, in some cases, more robust.

But Pelosi and House Minority Whip Steny Hoyer (D-Md.) have said the current proposal isn’t good enough.

“We believe it undermines tax reform and we believe its priorities are incorrect,” Hoyer told reporters on Tuesday.

The tax discussions are closely linked with negotiations over a year-end spending bill that must be passed by the end of Friday when current spending authority runs out, unless it is extended for a short period through a stop gap funding bill. The plan was to combine the tax and spending plans into one package, which would allow Democrats and Republicans to claim some policy victories.

The talks over the tax bill have had intermittent success in recent days and negotiators for Republicans in both chambers and Senate Democrats reached a breakthrough Monday night that they hoped would resolve a lingering battle over plans to stall several Obamacare taxes. The Obamacare issues are not part of the original extenders list and were added to make the agreement more palatable for both sides.

The major shift came when Democrats relented on demands that the deal shore up a program intended to help compensate insurance providers who fail to see a profit from health plans offered on Obamacare exchanges. Republicans added a one-year delay of a sales tax on all health insurance plans that increases the overall cost of buying coverage, which was enough to satisfy Senate Democrats.

The proposed deal would permanently extend several tax provisions–  including the research and development break, expensing rules for small businesses, the Child Tax Credit (CTC), the earned income tax credit (EITC) and college tax credits — while extending others for five years.

It also would include modifications to tax provisions in the Affordable Care Act. The proposal would delay for two years a tax on medical device manufacturers and an excise tax on expensive employer-sponsored health plans known as the Cadillac Tax. The deal was sweetened even further by making it fully refundable once it is reintroduced.

The Cadillac Tax is reviled by Republicans and some Democrats. Senate Majority Leader Mitch McConnell (R-Ky.) and Senate Minority Leader Harry Reid (D-Nev.) have both backed efforts to repeal it. Speaker Paul D. Ryan (R-Wis.)  has attacked it and many Democrats, including presidential candidates Hillary Clinton and Sen. Bernie Sanders (I-Vt.), also want to see it either delayed or repealed.

While House Democrats push for more concessions, Senate Democrats say the long-term package provides some of the most generous tax breaks for workers in years and is a step in the right direction.

“If you talk about permanent and expanded provisions in three important areas… you’re getting a big shot in the arm, a real booster shot for the cause of making opportunities for working families,” said Sen. Ron Wyden (D-Ore.), the top Democrat on the Senate Finance Committee.

“I’m hopeful that at the end for all Democrats, especially our leadership, they will say this is a fair and balanced package,” Wyden said.

The question now is whether Republicans will make further concessions to appease House Democrats.

If not, House GOP leaders have two options. They can try to pass the package with only the support of Republican members, which may be difficult because some conservatives oppose the bill, worried over its cost and that some of the breaks are expensive giveaways to corporate interests. Or, they could move a scaled-back package this week that would extend the breaks for two years.

House Democrats have maintained throughout the negotiations that the package could be too expensive, with some versions adding about $700 to $800 billion to the deficit over 10 years, and provides too much support for businesses and not enough for low-income workers.

“In the absence of a balance between working families and business provisions, the permanent bill was on a dangerous path of being too large for Members to support,” Pelosi (D-Calif.) wrote in a letter to colleagues on Monday.

But Democrats are under heavy pressure from outside groups to support any deal that makes the low income tax breaks permanent even if none are expanded. A group of 130 progressive groups and social welfare organizations, including Feeding America, Goodwill Industries International and the NAACP, wrote to lawmakers Monday, urging them to back a permanent extension of both the EITC and the child tax credit.

“Not doing so would put these improvements at considerable risk in 2017; there are too many uncertainties in 2017 to count on securing permanent extension of these critical provisions then,” the groups wrote.

House GOP leaders are still working on the scaled-back bill that would retroactively reauthorize the list of about 50 tax breaks, many expired a the end of last year, and extend them for one year.

House Ways and Means Committee Chairman Kevin Brady (R-Texas) said that even though the House is ready to consider a smaller packagel, he expects negotiations will continue on the larger deal.

“We continue to work on this,” Brady said.

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