Cornered House leaders throw bone to Blue Dogs

Members of the conservative Democratic “Blue Dog” coalition are poised to defeat a Democratic rule for debate on Alternative Minimum Tax (AMT) relief and potentially hand their leadership a major embarrassment.

The tax relief measure at press time was scheduled to reach the floor Wednesday. If conservative Democrats join forces with Republicans to defeat ground rules for debate, Democratic leaders may pull the bill from consideration. Such an outcome would be a major political setback because failure to pass AMT relief could subject 23 million Americans to higher taxes. Most votes on the rule allowing legislation to come to the floor fall along straight party lines.

Nearly 30 Blue Dogs met Tuesday evening to discuss strategy, splitting over the course of action.

But Rep. Allen Boyd (D-Fla.), chairman of the Blue Dog coalition, said his conservative colleagues are unified enough to defeat the rule if Republicans vote along party lines to oppose it as well. GOP leaders are eager to derail the Democratic agenda in the days before Congress adjourns for the year.

The centrist House Democrats are prepared to oppose the Senate-passed version of AMT relief, which House leaders have planned to consider, because its cost would not be paid for by other tax increases. Blue Dogs argue the bill would violate “pay as you go” or “Paygo” budget rules the party adopted after winning control of Congress.

“To pass a rule to waive Paygo, [House Speaker Nancy Pelosi (D-Calif.)] will have to have Republican votes,” said Boyd.

Reps. Jim Cooper (D-Tenn.) and Gene Taylor (D-Miss.) said they would likely oppose the leadership’s rule for AMT debate.

“I think it’s a pipe dream,” said Cooper of his leaders proposal to add revenue-raising measures to a future package of tax relief extensions in exchange for Blue Dog support on the AMT.  

At a closed-door meeting earlier on Tuesday, Democratic leaders made a peace offering to the centrists by proposing to pay for a $53 billion AMT relief bill with tax increases next year. Democratic leaders proposed adding revenue-raising measures to a package anticipated in 2008 that would extend various expiring tax cuts.

But at press time, many Blue Dogs were rejecting the offer.

Blue Dog Democrats have made fiscal conservatism and balanced-budget government their top priorities.

Earlier this month, 31 House Blue Dogs signed a letter to leaders insisting that AMT legislation comply with budget rules.

Echoing other Blue Dogs, Rep. Jane Harman (D-Calif.) said that the AMT measure should be “paid for now” and that she wanted to see Senate Democrats force Republicans to debate the issue.

Rep. John Tanner (D-Tenn.), a senior member of the Blue Dog Coalition, said, “I want [Senate Majority Leader] Harry Reid [D-Nev.] to put on the floor an AMT bill that’s paid for and let the Republicans in the Senate defend protecting less than 10,000 people who have exploited the tax loophole[s].” House Democrats recently proposed paying for the AMT by tightening various corporate tax breaks, such as restricting benefits available to hedge fund managers who defer offshore compensation.

To appease her colleagues, Pelosi pressed Reid to reconsider a version of the so-called AMT patch that would not add to the budget deficit. To underscore her demand, Pelosi threatened to withhold from the Senate an omnibus package made up of 11 spending bills. The Senate cannot leave town until it passes the massive spending bill or approves a stopgap measure to keep the government in operation.  

Reid told reporters Tuesday that he asked his staff to make preparations for AMT legislation that failed to pass the Senate earlier this year. But he did not hold out much hope that it would pass.

“I asked floor staff to come up with a consent [agreement] to allow a vote on the bill that has already been defeated,” he said. “But we’ll take it up again. Maybe there will be some changed minds.”

House Majority Leader Steny Hoyer (D-Md.), who relied on the support of Blue Dogs when he challenged Pelosi for the post of Democratic whip several years ago, also tipped his hat to the coalition of fiscal conservatives by suggesting Tuesday morning that AMT relief may not pass.

Hoyer’s remark came as a surprise because lobbyists and other political insiders had expected House Democrats to capitulate to the Senate’s proposal.

The need for immediate action on AMT is urgent because the IRS is now preparing tax forms for next year.

Refusing to pass some type of AMT relief could be a public relations nightmare for the Democratic majority.

Aware of the potential political attacks awaiting Democrats if they allowed new taxes on millions of voters, Rep. Chris Van Hollen (Md.), chairman of the Democratic Congressional Campaign Committee, quashed the notion that Congress would leave the issue unresolved.

“It’ll be worked out,” said Van Hollen. “At the end of the day we will pass AMT relief.
“I think it’s important that we get it done,” he said. “We have competing issues here, but we have to make it a priority that we have middle-class tax relief.”

House Ways and Means Committee Chairman Charles Rangel (D-N.Y.) said Tuesday that sparing middle-class voters from new taxes should be a top priority. Rangel said he wanted to pass the tax cut now and pass legislation paying for it next year — even though he has said repeatedly over the last couple months that AMT legislation would be offset.

Last week, two leading liberals circulated a letter among colleagues seeking to pressure leaders to find a way to pay for the AMT patch.

“As progressive members of the Democratic Caucus, we wish to make clear our concern with any AMT patch that does not adhere to the House PAYGO rules,” wrote Rep. Lloyd Doggett (D-Texas), a member of Ways and Means, and Rep. Peter DeFazio (D-Ore.) in a letter sent to Pelosi. “We believe House Democrats must remain united on this principle.”

Manu Raju and Mike Soraghan contributed to this report.