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Obama-GOP tax deal trimmed in tinsel and contempt

WASHINGTON — In the spirit of the holiday season, President Barack Obama's tax-cut deal with Republicans is becoming a Christmas tree tinseled with gifts for lobbyists and lawmakers. But that hardly stopped the squabbling on Friday, with Bill Clinton even back at the White House pleading the president's case.

While Republicans sat back quietly, mostly pleased, Democrats and other liberals were going at each other ever so publicly. As Clinton spoke on Obama's behalf, Vermont independent Bernie Sanders castigated the agreement for the TV cameras in the mostly empty Senate chamber.

The final package, released late Thursday, would extend tax credits for producing ethanol and for hiring Native Americans. It would maintain deductions for teachers who buy their own supplies and businesses that donate books to charity.

It has tax breaks for restaurants, movie producers and NASCAR track owners. It has a special "economic development credit" for investors in American Samoa.

The provisions — long-standing tax breaks that are renewed by Congress year after year — are layered on top of a two-year extension of the larger, Bush administration income tax cuts that Republicans and Democrats have been fighting about for months.

"This tax bill is not in line with fundamental tax reform," said Sen. Ron Wyden, D-Ore., a reform advocate who has yet to decide whether to support the package in a critical vote set for Monday. "It's essentially propping up this broken system that we've got today."

The final package — which contains $801 billion in tax cuts paired with a $57 billion extension of emergency jobless benefits — was drafted by the White House and lawmakers in both parties and is intended to boost the economy. But its final shape emphasizes the lingering disconnect between high-flown concerns about the mounting national debt and the ground-level reluctance to raise taxes or demand other public sacrifices necessary to reduce government borrowing.

The tax deal also includes ethanol subsidies for rural folks, commuter tax breaks for their cousins in the cities and suburbs and wind and solar grants for the environmentalists — all aimed at winning votes, particularly from reluctant Democrats.

The holiday additions are being hung on the big bill that was Congress' main reason for spending December in Washington, long after the elections that will give Republicans new power in January.

On Friday, there were contrasting events for public consumption.

On Capitol Hill, Sanders spoke vigorously for more than eight hours in a virtually empty chamber, urging defeat of a measure he said would give "tax breaks to millionaires and billionaires who don't need it."

At the White House, Obama turned over the briefing room microphone to former President Clinton, who declared, "I don't believe there is a better deal out there." All sides, he said, "are going to have to eat some things they don't like."

Almost $5 billion in subsidies for corn-based ethanol and a continuing tariff to protect against ethanol imports were wrapped up for farm-state lawmakers and agribusiness lobbyists.

The ethanol money was added despite a growing congressional opposition to subsidizing the fuel after decades of government support. Last month, 17 Republican and Democratic senators wrote to leaders calling the tax breaks "fiscally indefensible," because there's already a law that requires ethanol be blended into gasoline.

But ethanol still has powerful supporters on Capitol Hill, including Iowa Sen. Charles Grassley, the top Republican on the Senate Finance Committee and a key negotiator on the Senate tax bill.

But while the add-ons may have won more votes for the Obama-GOP deal in the Senate, their potential impact is less clear in the House, where Democrats have criticized the package as a tax giveaway to the rich.

And there's the possibility the added goodies will have opposite the intended effect for some lawmakers. Rep. Jeff Flake, R-Ariz., said the add-ons could turn his fiscally conservative colleagues against the bill.

"You don't want to be accused out there of supporting stimulus three," he said. "It will knock some votes off in the House, but more than anything it will show the voters out there that things haven't changed with Republicans."

Meanwhile, even the package pending in Congress offers glimmers of hope that lawmakers may be ready to start paring back the profusion of loopholes that have crept into the tax code since the last major overhaul in 1986, during the Reagan administration.

The current bill contains two major new tax breaks aimed at creating jobs and boosting the economy. An expanded incentive for businesses would permit them to write off 100 percent of the cost of capital investments next year, while another provision would cut payroll taxes for workers from 6.2 percent to 4.2 percent on income up to $106,800 in 2011, for a potential savings of up to $4,272 per couple.

But the bill does not contain a single new perk requested by a lawmaker, congressional aides said, perhaps a first for major tax legislation. And although lawmakers and the White House agreed to extend dozens of tax breaks that have been around for years, they agreed to drop more than 40 others, aides said, including a deduction for property taxes enacted in 2008 that benefits millions of homeowners who do not itemize on their tax returns.

Information from the Associated Press and Washington Post was used in this report.

By the numbers

The estimated cost, over 10 years, of some of the new provisions added to the tax deal taking shape in Washington:

$4.8B

Tax credit for oil refiners who blend ethanol with gasoline, tariff on imported ethanol, other ethanol tax credits.

$3B

Grants to reimburse developers of renewable energy.

$2B

Incentives for biodiesel fuel production.

$792M

Gulf Coast tax incentive programs enacted after Hurricane Katrina.

$138M

Tax credit for construction of energy efficient homes.

$136M

Tax breaks for commuters who use mass transit.

Obama-GOP tax deal trimmed in tinsel and contempt 12/10/10 [Last modified: Monday, November 7, 2011 1:40pm]
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