Veto threat derails Reid tax deal

The White House on Tuesday threatened to veto an emerging deal that would restore several lapsed tax breaks, bringing into the open tensions between President Obama and the top Senate Democrat.

Jennifer Friedman, a White House spokeswoman, said the deal being hashed out between Senate Majority Leader Harry Reid (D-Nev.) and House Ways and Means Chairman Dave Camp (R-Mich.) gave far too much to business interests, and far too little to the middle-class.

{mosads}“The president would veto the proposed deal because it would provide permanent tax breaks to help well-connected corporations while neglecting working families,” Friedman said, just hours after reports emerged that a $450 billion deal on the tax breaks was close at hand and that negotiators hoped to wrap it up by Tuesday.

The White House veto threat upended those talks, underscoring that both Obama and House Democrats had some problems with the agreement that Reid was negotiating.

Top administration officials, like Treasury Secretary Jack Lew and White House spokesman Josh Earnest, had warned lawmakers on Monday that they wouldn’t approve of the deal being negotiated on Capitol Hill.

The deal would have extended top priorities for the business community, like faster write-offs for expenses and an expanded version of the popular credit for research, but would have left untouched tax breaks for low-income families championed by Democrats.

Aides on Capitol Hill said Tuesday evening that the deal was off, and that only time would tell if it could be revived.

Obama’s efforts to submarine the package of tax breaks, commonly known as extenders, also comes after the White House and Reid’s aides have sniped at each other in the press following the GOP takeover in the Senate.

Democratic aides on Capitol Hill said that the White House quickly made it clear Tuesday that it was, in the words of one staffer, “livid” over a deal that would have indefinitely extended tax priorities for both parties.

Senior administration officials reached out to Democratic lawmakers to get that message across, aides added, with even Obama and Lew trying to marshal opposition.

“This is a terrible deal for Democrats,” one aide said.

Later, prominent Democrats like Rep. Chris Van Hollen (Md.), Rep. Sandy Levin (Mich.) and Sen. Sherrod Brown (Ohio) threw their support behind the White House’s veto threat.

In all, more than 50 tax breaks expired at the end of 2013, and lawmakers have been discussing for months whether some of those should be made part of the tax code for good.

House Republicans voted this year to extend the research credit and the business expensing provision known as Section 179 for good and to expand the research credit, ideas that also have some support on the Democratic side of the aisle.

Under the deal, a production tax credit favored by the wind industry and largely opposed by Republicans would have been phased out.

For Democrats, the deal included indefinite extensions of both a tax break that helps families with college costs and another that helps commuting workers pay to ride mass transit.

Sen. Charles Schumer (D-N.Y.) is a big proponent of both those preferences. An incentive that allows taxpayers to deduct state and local sales taxes, which Reid has long backed, would also have been revived for the long haul.

Most of the rest of the tax breaks that expired at the end of last year would have been extended through 2015 under the deal, as they were in a bipartisan package that passed the Senate Finance Committee earlier this year.

Tax breaks that help charities and S corporations — businesses that pay taxes through the individual code — would also have gotten extended for the long haul under the deal.

The legislation also included some new provisions that aren’t already in the tax code, including a proposal that allows people with disabilities to set up tax-free savings accounts.

With that deal now in peril, lawmakers will have to scramble to strike an extenders deal that staves off a delay in the 2015 tax-filing season. John Koskinen, the IRS commissioner, has said that refunds could be delayed next year if a deal wasn’t in place by the end of this month.

If a broader deal between the two chambers doesn’t make it through Congress, House GOP leaders have warned that the best they might be able to do is extend expired provisions only through the end of 2014.

But senators from both parties have said that they prefer the two-year deal passed by the Finance Committee this year.

Democrats’ major problem with the deal was that it wouldn’t extend expansions of the Earned Income Tax Credit and the child tax credit, which expire at the end of 2017.

“We should not pass a lopsided deal with hundreds of billions of dollars in business tax relief and chump change for working families,” Brown, a member of the tax-writing Senate Finance Committee, said in a statement. “Yes, businesses should get the certainty they need — but so too should working families living from paycheck to paycheck.”

But Democrats and budget hawks like the Committee for a Responsible Federal Budget also complained that the deal would heap hundreds of billions of dollars on to a deficit that has consistently been shrinking in recent years.

“The overall package is simply unacceptable and adds more than $400 billion to the debt,” said Van Hollen, the top Democrat on the House Budget Committee. “Unless our economy works for every American, it isn’t working.”

A deal that extended provisions permanently would make the math easier for the incoming House Ways and Means chairman, Rep. Paul Ryan (R-Wis.), as he seeks to overhaul the tax code.

Congressional scorekeepers currently assume that the temporary tax breaks will expire as scheduled, even though lawmakers have consistently revived them. If the tax breaks are extended for good, tax writers wouldn’t have to find offsets to keep them or could use money saved from any reductions in the incentives to pay for lower tax rates.

— This story was last updated at 6:30 p.m.