Dems threaten Reid tax deal

Rank-and-file Senate Democrats are threatening to sink an effort by the White House and Minority Leader Harry Reid (D-Nev.) to extend a centerpiece of President Obama’s 2009 stimulus package.

Reid and the White House want to permanently extend three tax credits at the core of the stimulus bill: the child tax credit, the earned income tax credit and the American Opportunity Tax Credit for college expenses.

{mosads}To win over GOP support, Reid is offering to make permanent two major business tax breaks backed by the GOP, the research and development tax credit and the Section 179 expensing credit for small business.

Instead, it’s dissent within Reid’s own caucus that threatens to derail the talks.

“I’m going to have trouble supporting any extenders package,” said Sen. Claire McCaskill (D-Mo.). “I think it’s too big and there are way to many goodies being given out to special interests.”

“How are we ever going to get tax reform if we keep giving out goodies at Christmas?” she said.

McCaskill’s complaint hints at a big problem for Reid. The cost of the tax package is getting pricey.

Senior White House officials and Republican and Democratic leaders in both chambers are in talks over a deal that could range in size from $500 billion to $800 billion over ten years, but the price tag has set off alarm bills among some Democrats.

Reid tried to negotiate a similar package last year but, it was blown up by the White House. This time, he’s taking another shot with just a week or two left in the congressional session — and Obama is more firmly on board, say congressional sources.

A House aide said there are different proposals being discussed but estimated a price tag in the range of $700 billion to $800 billion over 10 years. A Senate aide projected the package would cost $500 billion over 10 years.

The eye-popping numbers are raising the ire of Democrats, who spent much of this year debating mandatory spending cuts to offset the cost of raising the spending caps set by the 2011 Budget Control Act.

“We’re running a $400 billion budget deficit that’s expected to rise in the next half dozen years back to a trillion dollars. When we’re talking about an extenders tax package that is not paid for, small is better,” said Sen. Tom Carper (Del.), a Democratic member of the Finance Committee, which has jurisdiction over taxes.

The ballooning cost of the package has drawn pushback from House Democratic Leader Nancy Pelosi (Calif.), another player in the talks.

“The initial package is too big in the leader’s view,” a Pelosi aide said Friday.

Complaints about cost aren’t the only problem for Reid, either.  

Sen. Bill Nelson (Fla.), another Democrat on the Senate Finance panel, said he wants to see a shorter-term package instead of a big deal.

He thinks business groups and other interests will be more willing to negotiate comprehensive reform — which would simplify the tax code — if some of their most cherished tax breaks aren’t made permanent.

“I want total tax reform, which you have the greater likelihood of in the next Congress under a new president if you have the shorter-term extenders,” he said.

Another potential pitfall facing a major deal on taxes is disagreement over whether to index the child tax credit to inflation, which many Democrats favor. 

“One of the things we want is to make sure that, on the child tax credit, it’s indexed,” Reid told reporters Tuesday. “And until we get over that hump, we’re not going to look at anything else.”

He said if Republicans “give us indexing … we’re happy.”

Reid also has allies in his party.

The White House is backing the proposal, though it has not signed off on adding language repealing the “Cadillac tax” on high-cost insurance plans to the measure — something being pushed by Democrats.

“The White House is supportive of bipartisan congressional efforts to make tax credits for working and middle-class families permanent, while taking steps to end several significant corporate tax cuts,” said Jen Friedman, deputy White House press secretary.

And some Senate Democrats, who discussed the package at a special caucus meeting Thursday, are eager to make the research and development tax break permanent along with credits targeted at lower- and middle-class families.

“My very first bill was around R&D tax credit permanency,” said Sen. Chris Coons (D-Del.). “I really hope we won’t miss this opportunity to get permanency around [earned income tax credit], [child tax credit] and the American Opportunity Tax Credit in exchange for permanency on the R&D credit.

“I think this is a terrific opportunity for us to do a strong package.”

Also in the mix is a permanent deduction for state and local sales tax, a boon to Nevada that Reid has long championed.

Reid, who is stepping down as leader at the end of the 114th Congress, would like to add another legislative win to his legacy.

Still, he’s only one player in the talks, along with Pelosi, Senate Majority Leader Mitch McConnell (R-Ky.), Speaker Paul Ryan (R-Wis.) and the senior Republicans and Democrats on the tax-writing committees in both chambers.

A senior Senate aide argued making these middle-class tax credits permanent is a goal shared by the majority of the Senate Democratic caucus.

“It is a time when we can get these middle-class tax priorities that we have been pushing for a while. Reid sees that opportunity and is trying to make it happen,” said the aide. “The vast, vast, vast majority of the caucus is supportive of these. These are huge Democratic priorities.”

That Reid might win is setting off alarm bills for some liberals, however, who worry Republicans would gain too much of a victory.

Sen. Ben Cardin (D-Md.), a member of the Finance panel, told Politico that a package indexing the child care tax credit to inflation would be a significant victory.

“But it’s relative to what size package comes out and what else is in this package,” he added.