Senate clears tax break package

The Senate cleared a $41.6 billion package of tax breaks on Tuesday, sending the legislation to President Obama in one of the last substantive moves of this Congress. 

{mosads}By a 76 to 16 vote, the Senate passed a measure that would extend more than four dozen tax breaks for both businesses and individuals just through 2014.

Republicans and Democrats latched on to the one-year deal after the White House undercut negotiations on a broader bipartisan package, underscoring divisions between Democrats in the wake of this year’s heavy losses at the polls. Senators from both parties said Tuesday that they would have preferred legislation that restored the tax breaks through 2015.

But in voting for what they termed the least bad option, senators also suggested that the tax package was a fitting end to a Congress known for gridlock.

“It is quite literally the best we could do,” said Sen. Orrin Hatch (R-Utah), the incoming chairman of the Senate Finance Committee.

Senators and aides have for days thought that the tax legislation could be the final piece of legislation that the Senate considered in the 113^th Congress.

Top senators continue to negotiate over the extension of a terrorism insurance bill, but Sen. Tom Coburn (R-Okla.) has been blocking that measure. Aides have said that Democrats held the tax legislation to ensure that senators stayed around to vote on a string of President Obama’s nominees before Republicans take control of the chamber in January.

The short-term tax bill restores tax provisions that help working families, like distressed homeowners, teachers who buy their own supplies and commuters who use mass transit. For the corporate community, the package includes the popular credit for research and development, an incentive for businesses to invest in economically distressed areas and two preferences for multinational corporations’ offshore income.

In recent years, Congress has made a habit of retroactively reviving the incentives, and then extending them for another year. That approach gives taxpayers and businesses time before they file taxes for a given year, but lawmakers say it also causes uncertainty throughout the economy.

The passage of the tax breaks also comes as the White House and both congressional Democrats and Republicans have talked up the possibility of overhauling the tax code. But the problems that Congress had in restoring the expired tax breaks underscores the deep divides that the two parties will have to overcome to make that a reality next year.

“Retroactive tax bills like the one before the Senate tonight may satisfy Congress, but they leave workers, families and businesses wanting,” Wyden said Tuesday. “It’s time for Congress to do the hard work of tax reform.”

The latest extension of the tax breaks also includes a credit for wind energy, which has bipartisan support but is perhaps the most controversial of all the 50-plus incentives.

And it includes preferences derided by lawmakers like Coburn as corporate pork, helping out tuna factories in the American Samoa, rum distillers in Puerto Rico and the Virgin Islands, NASCAR track owners and racehorse owners.

As further incentive for senators, a popular bill allowing people with disabilities to open tax-free savings accounts was also tacked on to the tax extension legislation. Advocates have worked for eight years to get that measure, known as the ABLE Act, into law.

The House easily passed the one-year tax legislation almost two weeks ago, after President Obama and congressional liberals torpedoed an emerging deal between Senate Majority Leader Harry Reid (D-Nev.) and House Ways and Means Chairman Dave Camp (R-Mich.).

That deal would have permanently extended business incentives that the GOP favors, like the research credit and a preference for business expensing, and also tax breaks championed by Reid and Sen. Chuck Schumer (D-N.Y.) – like a deduction for state and local sales taxes, and the mass transit tax break.

On Tuesday, Hatch blamed Obama and the current Senate Finance chairman, Ron Wyden (D-Ore.), for scuttling that deal. Camp and other Republicans have especially blamed Wyden for the downfall of the broader tax legislation, which didn’t permanently extend two key tax credits for the working poor and which many liberals thought was too weighted toward corporate interests 

“The problem, of course, is the president and some of his allies here pulled the plug on negotiations that would have yielded a much more satisfying result,” the Utah Republican said.

After the bigger deal died, Wyden and other Senate Democrats fought for the two-year extension of most tax breaks that the Finance Committee passed in the spring. The Finance chairman sent counteroffers to Camp, but also found little support from Reid and even the White House and other Democrats opposed to the emerging Reid-Camp deal.

Camp and Wyden also made a last-ditch effort last week to permanently restore three separate incentives for charitable giving, but saw the White House slap a veto threat on their effort and House Democrats block their proposal.

Wyden has downplayed his efforts to sink the broader tax deal, which would have cost in excess of $400 billion. And, unlike Hatch, Wyden and several other Democrats on the Finance Committee were unwilling to plug their nose and vote for a measure that will force Congress to take another look at the expiring provisions next year, and that left a healthcare tax break for workers displaced by trade on the cutting room floor. 

“This package of tax incentives will last just two weeks,” Wyden said ahead of the vote. “It doesn’t have the shelf-life of a carton of eggs.