CHN: Double Standard – House and Senate Willing to Extend Corporate Tax Breaks Without Paying for Them
House Ways and Means Committee Chairman Dave Camp (R-MI) wanted to pass a comprehensive tax reform plan. He proposed doing away with many tax breaks in order to pay to continue others and to reduce tax rates. But being specific about ending certain tax breaks wasn’t popular among his colleagues. So his Plan B was to take up the permanent extension of six corporate tax expenditures in committee, without any offsetting revenue increases. The package of six bills cost $310 billion over ten years. On April 29, they all passed with almost straight party line votes. On May 9, perhaps the most popular bill in the group, the tax credit for corporate research (H.R. 4438) was taken up on the House floor and got a resounding, veto-proof majority of 274-131. The majority included 62 Democrats, including five of the Ways and Means Democrats who had previously opposed it. The Obama Administration threatened to veto the measure.
Democrats on the Ways and Means Committee were unified in opposing these bills in committee because they selected out a few corporate tax reductions to make permanent, did not pay for them, and left out many other tax cuts that should be renewed (including low-income credits). They objected to taking up these corporate tax cuts while the House was still refusing to restore the expired unemployment insurance program for the long-term unemployed. Rep. Sandy Levin (D-MI), the senior Democrat on the Committee, spoke in opposition to the six tax bills on these grounds, explicitly raising the millions of long-term jobless still awaiting House action and in desperate need of help.
For foster youth, a tiny cost must be paid for. The Committee set up another such contrast when it took up H.R. 4058, a modest bill “to prevent and address sex trafficking of youth in foster care.” The bill originally had a price tag of $4 million, including $1 million to defray states’ costs in providing youth aging out of foster care with documents they need to get started in life, such as birth certificates, Social Security cards, or medical records. Prior to the mark-up, that provision was deleted because of the cost. Democratic staff were asked for an offsetting cut; they did not provide one, and the section was taken out. Rep. Doggett (D-TX), a strong supporter of the legislation, decried the loss of the funding for documents, and offered an amendment to restore the $1 million. Chairman Camp agreed to try to resolve the problem without making any specific commitments, and Rep. Doggett withdrew his amendment. The foster youth bill was approved by the Committee. Then the Committee went on to pass the unpaid for $310 billion in corporate breaks.
Pressure to extend more tax cuts in the House. The House leadership is taking advantage of the reluctance of many Democrats to vote against popular corporate tax breaks that have been routinely extended in the past without being paid for. By taking them up individually, the price tag for each is easier to swallow. (Although it has been noted that the six bills passed by House Ways and Means would undo about half of the deficit reduction achieved by the upper-income revenue increases in the 2013 fiscal cliff deal.) House Ways and Means member Rep. Pat Tiberi (R-OH) speculated in CQ that the next bill to reach the House floor might be the permanent increase in small business expense tax breaks (H.R. 4457), costing $73 billion over 10 years.
Analysts have noted that making these tax reductions permanent means they will no longer be counted by the Congressional Budget Office as a source of revenue in future years. That will make it easier for House tax writers to cut corporate tax rates as part of a revenue neutral tax reform plan, because they will no longer have to make up the lost revenue by reducing or eliminating other tax breaks.
Senate floor action coming soon. The Senate has also demonstrated a bipartisan majority in favor of extending tax expenditures without paying for them. It has chosen to renew the full package of about 50 expired items (S. 2260, to be attached to a House revenue bill, H.R. 3474) only for two years, at a cost of $85 billion. The Senate Finance Committee approved this package on April 3 (see April 14 Human Needs Report). Majority Leader Reid (D-NV) filed a cloture motion (to limit debate), setting up a first vote on the Senate floor for May 13. That vote will require at least 60 senators to advance the bill so that it can be debated and voted on. If all goes smoothly, the bill could see final approval in the Senate within two weeks.
There are some signs the bill’s path in the Senate may not be altogether smooth. Some Republican senators are trying to collect signatures for a letter seeking an agreement to allow amendments to be offered to the tax extenders bill. Other Republicans are joining with Democrats to oppose amendments, so that the legislation can pass without being tangled up in controversial matters. That dynamic will make it difficult to attach unemployment insurance restoration to the bill. Because of the House leadership’s refusal to put the Senate-passed bill to restore UI for five months on the floor, it needs to be attached to a bill the House wants. As reported in Roll Call, Senator Heller (R-NV) announced that he would try to offer such an amendment.
Likely outcomes. Although the full package of tax cuts being considered in the Senate expired in 2013 or 2014, retroactively extending them by the end of the calendar year will prevent corporate losses. Many observers believe the final resolution will therefore be stalled until a lame duck session after the November election. They are also skeptical that Congress will agree to permanent extensions, but is more likely to take the Senate approach of another temporary fix.
Advocates have asked Congress to pay for these tax cuts by other fair revenue increases, and have especially opposed making them permanent. Getting Congress to pay for them at this point looks like a long shot. In addition, tax justice advocates have pointed out that many of the tax breaks up for extension do not contribute to economic growth; some in fact may encourage jobs and corporate income to flow offshore. Two bills approved by House Ways and Means on April 29 continue tax cuts that effectively gut Congress’ intent to prevent corporate tax avoidance by sheltering income overseas (H.R. 4429, Subpart F Active Financing Exception and H.R. 4464, Controlled Foreign Corporations (CFC) Look-Through Rules). (For more on this, see the Coalition on Human Needs’ April 28 letter to the Ways and Means Committee.)
Advocates have watched with dismay as these bills have moved forward without being paid for, while millions of the long-term jobless are still going without benefits, and modest help for youth in foster care is stalled. The Senate’s five-month extension was paid for by other cuts. But that bill would provide benefits only through May. If the Senate does not build in more months of long-term unemployment compensation and attach it to a bill the House wants to pass, the hard work of passing the Senate bill will have been in vain. (For more on unemployment insurance, see April 14 Human Needs Report.)