Senate Democrats and House Republicans cut a tax deal that plays perfectly into President Obama’s hands — and the White House is taking full advantage, blasting Republicans for favoring corporate America over working families.
Republicans, instead of listening to their K Street friends, ought to see the debate over expiring tax provisions as a chance for minor tax reform — and even for some populism of their own.
Democratic Sen. Harry Reid, the Senate majority leader for the next five weeks, cut a deal with Republican Congressman Dave Camp, the chairman of the tax-writing Ways & Means Committee for the next five weeks. Under the deal, many expired corporate tax provisions — including an expanded tax credit for research and development — would be resurrected and made permanent. Other tax credits would be abandoned, including a wind subsidy and some tax credits for low-to-moderate income families.
Obama took the unusual step of threatening a veto of this deal before it was even shaped into legislation.
This is a reversal for Obama, who is the man responsible for saving these corporate tax breaks two years ago.
During the tense fiscal-cliff negotiations at the end of 2012, the White House squared off against Senate Republican leaders. They mostly fought over individual tax rates (Obama wanted to let tax rates rise on upper-income people, while Republicans wanted to extend the tax rates created by the 2001 tax cuts), automatic spending cuts and unemployment insurance.
One White House demand back then: Inserting wholesale the “tax extenders” bill the Senate Finance Committee had crafted over the summer — and which had sat dormant since then. “This was a pure White House ask,” one GOP aide told me in those days. “They were absolutely insistent,” another said. Reuters confirmed a week later that, “Obama supported the overall package of tax breaks for businesses.”
At the same time, Obama falsely claimed he was trying to ensure “the biggest corporations can’t take advantage of loopholes and deductions that aren’t available to most of the folks standing up here.”
Obama touted the bill’s tax hikes on rich individuals — scored to raise federal revenue by $62 billion in 2013. But that hike was smaller than the corporate tax breaks he demanded — expected to reduce federal revenue by $67.7 billion.
Why would Obama reverse course so starkly? Why would he lead the charge for corporate tax breaks in late 2012, and then threaten to veto them in 2014?
His official explanation makes the opposite of sense. He says he liked temporary corporate tax breaks, but not permanent ones. Temporary breaks that get renewed every year of so they are good if you’re a tax lobbyist — they’re awful if you’re a business trying to make investment decisions.
In truth, Obama is playing political chess. He’s trying to outflank the GOP on the populist side. Back in 2012, he could get away with fighting for corporate loopholes in 2012. Now that opposing these breaks wins him populist points, he goes on the attack.
“The president would veto the proposed deal,” the White House said, “because it would provide permanent tax breaks to help well-connected corporations while neglecting working families.”
Obama’s attack resonated among left-leaning journalists: New York Times writer Eric Owles wrote on Twitter: “2014 Election Results: major tax breaks for corporations & race horse owners, but not for the working poor.”
Republicans could curse Obama’s hypocrisy and dishonesty. Or they could be smart, and call his bluff — and then out-populist Obama.
It’s standard behavior for Republicans, but it needn’t be. The opposite approach is arguably more conservative, and certainly more of a political winner.
Instead of making permanent corporate tax credits, Republicans could scrap the tax credits altogether. This would be a tax hike, sure, but it would also make the tax code more neutral, which conservatives understand is good for the economy. And the revenue generated by closing the loopholes can be used as an offset for other tax cuts: reducing the corporate tax rate, or providing tax relief for regular people still suffering from the recession. Propose this and force Obama to defend his beloved tax credit for General Electric’s windmills.
While Obama’s favored family tax relief involves more targeted tax credits, and picking winners and losers, a conservative tax cut for working families could be simpler: Cut payroll taxes for everyone. Republicans could slightly lower the payroll tax rate, or create a small personal exemption, so the working poor get to keep their first few thousand dollars before being forced to contribute to Warren Buffett’s Social Security.
Saying no to K Street would be a change of course for Republicans. Obama is thankful the GOP doesn’t change very easily.
Timothy P. Carney, The Washington Examiner’s senior political columnist, can be contacted at [email protected]. His column appears Sunday and Wednesday on washingtonexaminer.com.
