Imagine somebody asked you to imagine the worst possible deal on taxes. It'd probably have the following qualities:
It would be bad for the environment.
It would be bad for the deficit.
It would give short shrift to the working poor.
And it would be a bonanza for corporations.
Unfortunately, you don’t have to conjure up such a package. Congressional Republicans already have. And for some unfathomable reason, Senate Democrats including Harry Reid seem inclined to go along—although the White House has vowed to veto such a deal if Congress goes ahead and passes it.
On Tuesday, Politico reported that Reid and House Ways and Means Committee Chair Dave Camp had nearly reached an agreement on so-called tax extenders. Tax extenders are a collection of 55 tax breaks that Congress has traditionally renewed at the end of the calendar year. Ninety percent of them are for big business. Some target specific constituencies, such as owners of NASCAR racetracks.
Congress failed to extend them at the end of 2013, leading to a yearlong debate about what to do: temporarily renew them again or make permanent changes. The reported deal, brokered by Reid and Camp, would do some of both. It would expand and makes permanent a credit for research and development along with smaller tax breaks for college tuition, mass transit and state and local taxes. The arrangement would also extend bonus depreciation—which allows businesses to write off investments more quickly—and most of the 55 extenders for another two years.
The economic benefits of these credits, although real, are mild. Given the economic climate, a temporary, deficit-increasing extension—something Congress has done before—would make sense. But this deal wouldn’t be temporary. It’d be permanent. The bill would increase the deficit by more than $400 billion over the next decade and billions more thereafter. That’s a great deal of money. For comparison, the heralded fiscal cliff deal increased revenue by $770 billion:
The hypocrisy among Republicans is breathtaking. In the spring, they demanded a spending offset for an extension of federal unemployment benefits, which would be temporary and cost just $9.7 billion. That’s less than 2 percent of what the tax extenders would cost. They also fought for $39 billion in food stamp cuts, insisting the reductions were essential for fiscal balance.
For liberals, the problem isn’t simply what the deal would do to the deficit. It’s what the deal wouldn’t do for causes that liberals value. If Politico’s report is correct—and, to be fair, there’s no way to know for sure—they’ve accepted this deal while getting almost nothing in return. One of the only tax breaks that the deal will not extend is the wind production credit, which Republicans oppose, but has played an instrumental role in making the production of wind energy more economically viable. That tax break would be phased out over the next few years.
The reported agreement also excludes expansions of the Child Tax Credit and Earned Income Tax Credit. The 2009 reforms to those two credits allowed more low-income Americans to qualify and benefit from them. Those provisions, which aren’t technically part of the tax extenders, expire in 2017. If that happens, the Center for Budget and Policy Priorities projects, 16 million people will fall into—or deeper into—poverty. The extenders deal represented a perfect vehicle to make those provisions permanent.
The politics of this are hard to understand, at least for Democrats. Did the midterm elections signal that voters are eager for the government to give $400 billion in tax credits to Big Business? Of course not. And if the deficit picture gets worse, Republicans are sure to cite that as further reason to oppose future Democratic legislation. You can count upon Republicans to deny their own responsibility for the higher deficits—and plenty of media complicity, allowing the GOP to get away with it.
Why, then, has Reid agreed to this deal? Look no further than K Street. As you can tell by their price tag, the tax extenders are very important to Big Business and they spend a lot of money lobbying for them. In March, Americans for Tax Fairness released a report on lobbying of major corporations over tax extenders between January 2011 and September 2013. During that time, General Electric, for instance, employed 48 lobbyists who contacted a member of Congress or their staff about the extenders. Overall, more than 1,300 unique lobbyists were involved in the issue. They spent millions of dollars on them as well.
There is some good news though: The deal still stands a longshot to become law. House Speaker John Boehner likely won’t have trouble passing it but Reid will still have to round up Democratic votes for it to overcome a filibuster. Even if that happens, the president still stands in its way. “The President would veto the proposed deal because it would provide permanent tax breaks to help well-connected corporations while neglecting working families,” Deputy Press Secretary Jen Friedman said. It’s possible that the Senate and House have enough votes to overcome a presidential veto. But that’s hard to imagine.
The White House has plenty of company. Deficit-focused organizations like the Committee for a Responsible Budget are blasting the emerging agreement. So are House Democratic leaders, including Sander Levin (ranking member on Ways and Means) and Chris Van Hollen (ranking member on the House Budget Committee). “The reported deal on so-called ‘tax extenders’ prioritizes corporate interests while doing far too little for struggling American families,” Van Hollen said in a prepared statement.
Van Hollen has a good grasp of reality. This deal was built on K Street and in the backroom offices of Congress. It’s everything that’s wrong with Washington and Democrats, in particular, should want nothing to do with it.