Dems suit up for tax reform battle

More and more congressional Democrats are insisting that they cannot sign on to a tax overhaul that only helps businesses despite the potential to give a legacy achievement to President Obama.

Obama and GOP leaders have pointed to taxes as one of just a handful of areas for potential agreement over the next two years, and the White House has long said it wants to limit the focus of reform efforts to streamlining the tax code for U.S. companies. 

{mosads}But liberal lawmakers say there’s no way they can agree to a deal that would favor powerful corporations over individuals and families that have yet to feel the economic recovery, especially after Democrats fought unsuccessfully to extend expanded tax breaks for the working poor late last year.

“There’s a lot to do for business, and I want to work on that,” Senate Minority Whip Dick Durbin (D-Ill.) told The Hill. “But I think our first responsibility is to working families, and they are struggling.”

At a news conference in December, Obama said he would push to put out more detailed tax reform proposals in the coming months, answering criticism from Republicans who said he had done little more than talk about the issue in recent years. 

But by that time, Democrats had already started to make sure that the Obama administration was well aware of their position on leaving individuals out of tax reform talks. 

Sen. Harry Reid (D-Nev.), now the minority leader, has publicly blasted the idea, and several House Democrats objected to Treasury Secretary Jack Lew at a meeting in the Capitol at the end of 2014, maintaining that the party couldn’t put items like the Earned Income Tax Credit (EITC) and the child tax credit off to the side. 

“I think Jack Lew understands exactly what we were talking about,” said Rep. Bill Pascrell (D-N.J.), a member of the tax-writing House Ways and Means Committee. 

“He has to know that we’re not just going to lay down and play dead. Not only is the president fighting for relevancy, so are Democrats in the House and the Senate.”

Lawmakers, congressional aides and lobbyists on K Street weren’t exactly bullish anyway on the chances for tax reform over the next two years, despite the positive chatter from both the White House and top Republicans. 

The two parties, for instance, are far from an agreement about whether tax reform should raise new revenue for the government, and which tax breaks in the code should be on the chopping block.

But the reaction from Democrats about a business-only tax reform is just the latest sign that the White House and lawmakers have divisions within the party to bridge on tax policy. 

Obama, Democratic leaders in both chambers and the party’s top tax writers were never able to get on the same page late last year during negotiations over extending a raft of expired tax breaks. 

For instance, the president and liberal Democrats torpedoed an emerging deal between Reid and then-House Ways and Means Chairman Dave Camp (R-Mich.) that they said was too favorable for the business community, in large part because it didn’t extend expansions of the EITC and child tax credit set to expire at the end of 2017.

Some Democrats say, after putting up such a fight for those tax breaks, it makes no sense for Obama to leave them behind once more in tax reform negotiations.

“I think, both substantively and politically, it is unwise to say that the only people who are going to benefit from tax reform is the big guys,” said Sen. Ron Wyden (Ore.), the top Democrat on the tax-writing Finance Committee. 

That backlash also is coming at a time when liberals are increasingly trying to undercut Obama’s efforts to strike other economic deals before the 2016 election. 

Besides taxes, the White House and the GOP have also said they want to cut deals on trade and infrastructure spending. But liberals on Capitol Hill have long been wary of trade agreements they say hurt American workers. 

Still, other Democrats say it’s far too early to reject a potential business-only tax reform plan — especially, as one Senate aide said, if Republicans were willing to talk about a deal that also included funding to shore up U.S. infrastructure.

“If at the end of the day, we’re raising money by closing these dramatic, obscene loopholes, and that money is going to go into infrastructure and jobs, education — you bet your life we could put aside the individual tax rate,” said Rep. Charlie Rangel (D-N.Y.), a former chairman of the Ways and Means panel.

Yet there’s no doubt that it would add new wrinkles to the tax reform debate if a number of Democrats wanted to include individuals. 

Republicans and Democrats are far more divided on how they want to rewrite the tax code for individuals than they are when it comes to businesses. The GOP, for instance, wants to slash the top individual tax rate to 25 percent, while many Democrats don’t want it to budge from almost 40 percent.

Congressional Republicans have always preferred to revamp the individual and corporate tax systems together, mostly because the majority of businesses in the U.S. pay taxes as individuals. 

But House Ways and Means Chairman Paul Ryan (R-Wis.) has said he’s willing to discuss a business-only deal, and both sides believe a proposal can be crafted to help both corporations and the smaller businesses that pay as individuals. Ryan has also suggested tax reform is more likely to occur in 2017, after Obama leaves office.

“All the comments about business-only really were coming from the White House,” said Rep. Charles Boustany (La.), a senior Republican at Ways and Means. “I really haven’t paid much attention to what individual Democrats want to do at this point in time, because the lead’s going to have to come from the president.”

Democrats have also expressed a concern about ensuring that tax reform help small businesses, and some have suggested that trying to do a comprehensive overhaul would give lawmakers more room to deal. But for most Democrats, the biggest issue remains helping out their core constituencies.

“There’s lots of discussion and talk around here about how the middle-class is getting squeezed,” said Rep. Rosa DeLauro (Conn.), who’s also leading Democratic opposition to Obama’s trade efforts. 

“Well, if you only deal with tax reform at the top and you don’t do anything for middle-class families, then you have really not addressed one of the single biggest issues that we face today.”