$800 billion blowout

Tax deal swelling into $800 billion blowout

Budget hawks cry foul as Democratic and GOP wish lists find their way into a developing year-end bargain on tax breaks.

By Brian Faler

Congress is eyeing a year-end budget-busting tax cut blowout.

Lawmakers’ latest effort to renew a hodgepodge of temporary tax breaks is swelling into a catch-all measure that could cost more than $800 billion over 10 years. The money would go for everything from extending generous write-offs for business investments to renewing tax credits for poor families to repealing or delaying Obamacare’s much-loathed Cadillac tax. All of it would be unpaid for, which is giving budget hawks nightmares.

The bipartisan plan taking shape, a throwback to the George W. Bush era of big tax cuts that ballooned the deficit, has some wondering if it will collapse under its own weight. It could also run afoul of the budget that Republicans adopted in May, which promised to balance the government’s books within a decade. Policy disputes may also trip up the package, with the influential Republican Study Committee issuing several 11th-hour demands.

But the plan has powerful advocates, with both the White House and GOP leaders eager to claim tax cuts that have long been on their wish lists.

Senate Finance Committee Chairman Orrin Hatch said lawmakers are well aware of the risk of the still-unreleased package getting too big — acknowledging that $1 trillion would be too much. But he said they don't yet know how much the package will ultimately cost.

“It can get too big where it won’t pass at all,” the Utah Republican said. “So I think everybody has to look at it and say ‘Let’s do the art of the doable.'”

Deficit watchdogs are already sounding the alarm.

“By abandoning the discipline of paying for legislation, the costs of this bill have ballooned as it becomes a Christmas tree attracting more and more deficit-financed tax breaks and spending increases,” said Ed Lorenzen, a senior adviser at the nonpartisan Committee for a Responsible Federal Budget. “A year that began with talk about balancing the budget is about to end with Congress rushing through legislation adding over $800 billion to the debt.”

House Minority Whip Steny Hoyer (D-Md.) agreed to a point, saying he has "a very high concern about a bill that’s $700-$800 billion, unpaid for — extraordinarily exacerbating the debt. It’s very controversial.” Still, he defended Democratic priorities in the legislation under discussion, namely an extension of tax credits for low-income families.

Rep. Pat Tiberi (R-Ohio), a member of the Ways and Means panel, downplayed the potential price tag. “The contents are more important than the cost,” he said.

The bill's additions to the deficit would amount to a sharp reversal of the government’s steadily improving budget outlook in recent years. The deficit has been falling for six consecutive years, from the 2009 high of $1.4 trillion to a comparatively modest $439 billion for 2015.

The plan, which lawmakers hope to pass before quitting for the year, would make business tax breaks sought by Republicans permanent in exchange for renewing temporary low-income provisions backed by Democrats. That’s an about-face for the Obama administration and its allies in Congress, who have long cited the hit to the Treasury when scoffing at Republicans’ calls to make a dozen temporary business breaks a permanent part of the code.

For example, the White House threatened to veto a bill the House approved in May that would have permanently extended a popular credit for corporate research, at a cost of $180 billion. Those and other GOP-backed provisions would amount to “wiping out most of the deficit reduction achieved” through the 2013 fiscal-cliff agreement in which lawmakers raised taxes on the rich, the administration said at the time.

But now, the administration is willing to deal so long as Democrats get their own favorite tax breaks. For the White House, the plan represents what would likely be the last major tax bill during Barack Obama’s presidency, and a chance to secure provisions credited with helping lift millions of people out of poverty, regardless of who wins next year's election.

Democrats' demands begin with extending stimulus-era expansions of the Earned Income Tax Credit and the Child Tax Credit that are scheduled to expire at the end of 2017. The provisions drastically reduce the threshold at which someone can claim the refundable portion of the child credit, and expand the maximum Earned Income Tax Credit available to families with at least three children. Together, they would cost $100 billion, according to Treasury estimates.

But Democrats want to go beyond merely extending the breaks to expanding them as well, proposing to index the $1,000 child credit for inflation. That would cost an additional $73 billion.

“If we don’t, within four years or so, 700,000 children fall back into poverty,” said Sen. Sherrod Brown (D-Ohio), a member of the tax-writing Finance Committee.

A major sticking point to any deal is Republicans’ insistence that fraud-fighting provisions be added to the low-income tax credits, something Democrats have resisted out of fear it would hurt the beneficiaries.

The Republican Study Committee has zeroed in on that issue, “We should not renew stimulus legacy items like the expanded Earned Income Tax Credit (EITC) and the additional Child Tax Credit (CTC) without making significant improvements to the programs’ verification and oversight,” said Rep. Bill Flores (R-Texas), who heads the influential caucus of House conservatives.

Flores also demanded a phase-out of “special interest giveaways,” including a tax credit for the wind industry and a solar investment tax credit that are backed by Democrats.

Some Democrats also want to repeal or at least delay unpopular tax increases that were designed to ensure that the Affordable Care Act doesn’t add to the deficit, including the wildly unpopular Cadillac tax on pricey health benefits and an excise tax on medical devices. Those proposals have been long stymied over their costs; repealing them both would cost more than $100 billion.

The Obama administration has resisted calls to tinker with the Cadillac tax, saying it's needed to help control health costs, but that does not appear to be a deal-breaker.

Other lawmakers want to attach non-tax-related measures addressing guarantees in the Affordable Care Act that insurers wouldn’t lose money from selling policies under new terms imposed by the law.

The Democrats’ demands have Republicans upping their own requests, with GOP lawmakers pushing to permanently extend as many temporary tax breaks as possible. That would make their tax-reform plans easier because every dollar of tax cuts they can get now is one they won’t have to pay for later as part of a general overhaul.

But it would also violate the budget Republicans adopted last spring.

Their tax-and-spending blueprint assumed lawmakers would pay for any extension of the tax provisions. The increases in the refundable portion of the low-income tax breaks, which count as spending increases, would also break Republicans' so-called "cut as you go" principle requiring boosts in mandatory expenditures to be paid for with savings elsewhere in the budget.

When asked about the issue, House Budget Committee Chairman Tom Price (R-Ga.) said: "We believe allowing the American people to keep more of their hard-earned money is not something that needs to be paid for."

The plan, which lawmakers have been negotiating in secret over the past week, would also likely fly in the face of demands by House conservatives to return to so-called regular order, following their bitter complaints about being forced to vote on legislation they haven't had time to read. But one leader of the House's conservative faction wasn't willing to rule it out.

"We always prefer regular order, but I want to look at what's in the package before I comment on the process," said Rep. Jim Jordan (R-Ohio), head of the chamber's Freedom Caucus. "I always think it's better when you follow the normal process, but there are exceptions."

Asked about the cost, some Democrats argued that many of the provisions were going to be extended anyway, albeit one or two years at a time, so the money will be added to the deficit one way or another.

“There’s two ways you can look at it,” said Sen. Ben Cardin (D-Md.), another member of the Finance panel. “In a major way, it represents current tax policy since most of what’s in here has been the current tax policy, so you can look at it that way. Or you can look at the way it’s scored, and then it’s a pretty big bill.

“It does concern me, but I’m hopeful that we can see Democrats and Republicans come together — this is one area where we can come together,” Cardin said.

That’s similar to what Republicans argued earlier this year, in pressing to permanently extend certain business tax breaks, and it's what they argue now.

"What's the fiscal difference between extending tax relief permanently and extending it one year at a time every single year?" asked Ryan Ellis, tax policy director at Grover Norquist's Americans for Tax Reform. "There is precisely no difference. So these budgetary objections are simply not serious."