April 16, 2014 SIGN IN | REGISTER

Senate Leaders Press Effort at Eleventh-Hour Tax Compromise

Douglas Graham/CQ Roll Call File Photo
An aide to McConnell said “discussions are under way,” adding that no information was likely to be released prior to Republican senators being briefed Sunday afternoon.

At least for the moment, the brightest spotlight is on McConnell, who has taken over for Boehner as the chief Republican negotiator. After a meeting at the White House Friday, congressional leaders signaled that McConnell and Reid would exchange proposals aimed at a legislative compromise that would be passed first by the Senate and then by the House.

In his weekly radio address Saturday, Obama stressed the urgency of action before the automatic tax increases take effect. “Congress can prevent it from happening if they act now,” Obama said. “Leaders in Congress are working on a way to prevent this tax hike on the middle class, and I believe we may be able to reach an agreement that can pass both houses in time.”

To satisfy the constitutional requirement that revenue measures originate in the House, the Senate would take up a House-passed tax bill (HR 8) and use it as a vehicle for a compromise that would take its place as a substitute amendment.

If a deal is not reached, Reid planned to have a vote Monday on a tax package that would conform to Obama’s preferred policies. The bill would permanently extend tax cuts on income below $250,000 for couples, index the alternative minimum tax to inflation for 2012 and prevent payment cuts to physicians and tax estates at 2009 levels, with a top rate of 45 percent and a $3.5 million exemption.

Compared with an extension of current policy, the bill would raise about $760 billion over 10 years, according to Citizens for Tax Justice, a nonprofit research group. Raising rates only on income above $400,000 or $500,000 would shave at least $100 billion from that total, and continuing to tax estates with a 35 percent top rate and a $5 million exemption would cost another $120 billion or so.

Still, Democrats might have other opportunities to add to the government’s revenue collections. Even with a cutoff above $250,000, White House officials would likely see raising rates on ordinary income, dividends and capital gains as an important step toward their goal of making the tax code more progressive.

Given the nature of the tax system, it is difficult to substantially increase the tax burden of the wealthiest households earning above $1 million without raising tax rates. But other administration proposals that would limit tax deductions and exclusions could raise significant amounts of revenue from taxpayers earning $250,000 to $1 million if the White House can advance them as part of a tax system overhaul.

Similarly, Republicans are not about to give up on their fight to cut spending. Communicating via Twitter on Friday, Rep. Justin Amash, R-Mich., said the best Republican strategy would be to quickly pass a tax cut extension for middle-income earners and then “flip [the] script” to spending in 2013.

Amash, a tea party favorite who has clashed with the GOP leadership, said he would not vote for any bill that included a spending increase. But like many Republicans, his view is that once the fight over tax rates is settled and the focus shifts to the sequester and the debt limit, Republicans will have more leverage to seek their priorities.

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