Obama: Will veto tax-break deal

WASHINGTON -- With negotiators nearing an accord on permanent tax breaks for businesses worth $440 billion over 10 years, President Barack Obama rallied Democratic opposition and promised a veto.

"The president would veto the proposed deal because it would provide permanent tax breaks to help well-connected corporations while neglecting working families," said Jennifer Friedman, a White House spokesman.

The deal, negotiated by House Republicans and aides to Sen. Harry Reid, D-Nev., and the outgoing Senate majority leader, showed how much power has shifted since the Republican election victories this month. The negotiations fractured Democrats and separated the Obama administration from Reid.

White House officials said the package, intended to avoid letting a host of politically popular tax breaks expire at the end of the year, is too heavily tilted toward corporations and will have deep repercussions for budget and tax negotiations far into the future.

A veto would be the third of Obama's presidency. His threat sent negotiators back to the table to see if Republicans could add measures that would win liberal support, especially a permanently expanded child tax credit for the working poor.

"It's somewhat ironic they're willing to just proceed here, unpaid for, leave the middle class behind and include a lot of things that I think wouldn't benefit our economy," said Jason Furman, chairman of the White House Council of Economic Advisers.

Advocates of the deal in both parties said the emerging accord would lock in tax breaks that have been passed in short-term increments, year after year. Doing so would give businesses more certainty about making investments, they said, while extending tax benefits that already have broad bipartisan support. And Senate Democrats said they cut the best deal possible before next year's Republican takeover.

But Obama and Denis McDonough, the White House chief of staff, personally stepped in with a round of phone calls to lawmakers Tuesday afternoon to promise a veto. Shaun Donovan, the White House budget director, and Treasury Secretary Jacob Lew also called lawmakers.

Rep. Nancy Pelosi, D-Calif., the House minority leader, made several calls to key House Democrats to ensure the votes would be there in the House to sustain the president's veto.

Sen. Sherrod Brown, D-Ohio, said a veto would be sustained, even if the negotiated package were full of tax breaks for constituents of Senate Democrats.

"The light of day has changed the way this agreement might look," Brown said.

Some 55 tax breaks for businesses and individuals expired last year, and if they are not revived retroactively by Dec. 31, taxpayers will not be able to claim them for the current tax year.

Republicans said Congress might pass a one-year retroactive measure that would simply start the fight all over again in January, when they control the Senate and their numbers are fortified in the House.

The emerging tax legislation would make permanent 10 provisions, including an expanded research and development tax credit, which businesses and the Obama administration have wanted to make permanent for years; a measure allowing small businesses to deduct virtually any investment; the deduction for state and local sales taxes; the American Opportunity Tax Credit for college costs; deductions for employer-provided mass transit; and four different breaks for corporate and charitable giving.

Smaller measures already passed by the Senate Finance Committee, from tax breaks for car-racing tracks to benefits for racehorse owners, would be extended for one year, and retroactively renewed for the current tax year.

The tax credit for wind power, a Democratic priority, would phase out and end after 2017. Many conservatives oppose the wind credit as an unfair boost to an energy industry in competition with oil and gas.

Left off were the two tax breaks valued most by liberal Democrats: a permanently expanded earned-income credit and child tax credit for the working poor. On Friday night, Republican negotiators announced they would exclude those measures as payback for the president's executive order on immigration, saying a surge of newly legalized workers would claim the credit, tax aides from both parties said.

Republican aides involved in the negotiations reacted angrily to the White House's efforts to torpedo the talks. They said Obama had pushed for his own version of a permanent, expanded research and development credit as a boon to the economy and embraced a narrower proposal to let small businesses deduct the cost of investments. Now, they said, he is reversing himself rather than accept yes for an answer.

Democratic negotiators said they secured measures they might not be able to win when Republicans control the Senate next year. The American Opportunity Tax Credit was proposed by Obama and passed in the 2009 stimulus law. A permanent extension would give $97 billion in tax relief over 10 years to families of students in higher education.

Tax incentives for charitable giving would total $16 billion over a decade. And Republicans tossed in provisions specifically aimed at winning Democratic votes, such as making permanent the deduction for employer-provided mass transit benefits. Keeping the deduction for state and local sales taxes had appeal to Reid, whose home state has no income tax.

Opposition to the emerging accord united the liberal wing of the Democratic Party with budget hawks who objected to its cost. Maya MacGuineas, president of the Committee for a Responsible Federal Budget, decried what she called horse trading that bid up the package's price tag.

"I know every special-interest group wants to protect its tax break, and members want to continue to dole out all the goodies," she said. "But hey, my kid wants a pony. It doesn't mean someone doesn't have to pay for it."

Information for this article was contributed by Julie Hirschfeld Davis of The New York Times.

A Section on 11/27/2014

Upcoming Events