House, Senate Democrats derail package of tax cuts

A blowup between the Senate and conservative House Democrats has derailed a package of tax cuts, including tax incentives for renewable-energy production, which Democratic leaders hoped to count as a major accomplishment.

House Majority Leader Steny Hoyer (D-Md.) bluntly told Democratic Senate leaders to show some backbone and stand up to Republicans who oppose the House version of the tax package, which includes offsets.

{mosads}“We’ve been willing to compromise on everything, but not on fiscal sanity. That is why we ask Senate Democrats to stand up to the Republican minority,” said Hoyer.

But Senate Democrats fired back at their Democratic colleagues in the House, accusing them of taking too adamant a stance in the face of overwhelming opposition.

Senate Majority Leader Harry Reid (D-Nev.) pleaded with House Democrats to understand his difficult position: a slim majority, procedural rules that empower minority opposition, and the regular absence of three members of his caucus.

“I do not have the strength and the power — legislatively, procedurally — that they have in the House,” said Reid on the chamber floor.

“My majority is extremely slim, 51-49, when everybody is here,” he said. “I just beg my House colleagues to understand, this isn’t something that we are trying to surprise them with.”

House Democrats, led by Hoyer and members of the conservative Blue Dog Coalition, flatly rejected a Senate package that included energy tax relief extensions, business tax relief extensions and an extension of Alternative Minimum Tax relief.

Senate negotiators combined those tax breaks with disaster relief, mental health parity legislation and a bill to help rural schools.

The unexpected hard-line stance taken by House Democrats caught their Senate counterparts by surprise. Most painfully for Democratic leaders, the flare-up threatens renewable-energy tax breaks, which they hoped to count as a significant achievement of the 110th Congress.

“It’s unthinkable to leave town without renewing the tax extenders for renewable energy,” said Sen. Byron Dorgan (N.D.), chairman of the Senate Democratic Policy Committee.

A Democratic lobbyist said leaders had hoped their candidates would be able to tout the renewable-energy tax breaks on the campaign trail.

“They want to go home and campaign on that,” said the lobbyist.

A victory on taxes would have helped offset the loss they suffered on offshore drilling.

Congressional leaders this weekend sent to President Bush a $630 billion stopgap spending measure that lifted the congressional moratorium on offshore drilling.

Conservative Democrats balked at the Senate-crafted package because it failed to offset the cost of many of the tax-relief extensions, said a senior Democratic aide. The Senate bill would cost $107 billion over 10 years.

Sen. Ron Wyden (D-Ore.), a member of the Senate Finance Committee, said House Democrats should accept the Senate package because it passed by an overwhelming vote in the upper chamber and Bush has promised to sign it. He noted that Bush has vowed to veto the House alternative package.

House Democrats wanted to help pay for the proposals in their package by closing what they call tax “loopholes” for hedge fund managers.

“That’s why we ask Senate Democrats to stand firm against the Republicans insisting on the principle that we must finance tax cuts with debt,” Hoyer said.

The derailment of the tax package also threatens to subject tens of millions of Americans to higher Alternative Minimum Tax (AMT) rates next year, a scary political scenario for many Democrats who represent higher-income areas of the nation, such as the Northeast, that would be the hardest-hit.

{mospagebreak}Sen. Jon Kyl (Ariz.), the Republican whip, told The Hill that Republicans would not support AMT relief legislation if it were separated from the larger package.

Senate Republicans have refused to consider any alternative to the carefully negotiated package of tax cuts that it sent to the House early Monday.

Reid told his House counterparts that, otherwise, he would accept their proposal to break the tax package up into smaller pieces.

{mosads}“If it were up to me, I would accept this in a second,” said Reid.

But House Democrats are getting sick of the Senate’s hardball tactics.

Citing an attempt earlier in the 110th Congress to force House Democrats to accept a Senate-drafted surveillance bill without changes, Hoyer said his colleagues are not going to let themselves be jammed again.

“We’ve seen it before. Some of you remember FISA — the message was the same, ” said Hoyer, in reference to an overhaul of the Foreign Intelligence Surveillance Act. “Legislation by blunt force is not the way, as I said, we ought to proceed.”

Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, said that House Democrats may be more open to compromise in the wake of the defeat of a $700 billion Wall Street bailout package, which sent the stock market plummeting more than 700 points.

Economic experts warn that millions of Americans could lose their jobs if a rescue plan doesn’t pass.

Baucus predicted that House Democrats would be more amenable when faced with the prospect of letting tax breaks expire while the nation’s economy teeters on the brink of recession.

“There are more dynamics in play now,” he said, speaking of how the bailout would affect negotiations on tax cuts. “Things are related.”