Tax showdown: Congress nears deal to avoid hikes, Obama vows veto

Riders work their horses shortly after sunrise at the Keeneland Race Course on Versailles Road in Lexington, Kentucky, October 6, 2011
Riders work their horses shortly after sunrise at the Keeneland Race Course on Versailles Road in Lexington, Kentucky, October 6, 2011 MCT

Congressional leaders appeared near a deal late Tuesday to renew some $450 billion in tax deductions cherished by consumers, citizens and companies alike. The White House called it a bad deal and vowed a veto, though it faces a tougher Congress in January when Republicans take over the Senate.

The deal was being hammered out by two leaders soon to leave their positions of power: Senate Majority Leader Harry Reid, D-Nev., who will become minority leader when the Republicans take over the Senate in January, and Rep. Dave Camp, the Michigan Republican who heads the tax-writing House Ways and Means Committee through the end of the year.

President Barack Obama signaled he’d reject the pending deal between lame-duck leaders because it would make permanent big items on the Republican wish list while only temporarily extending two measures that he wants to make permanent – the Child Tax Credit and the Earned Income Tax Credit, a tax break for working families that is set to expire in 2017.

“The president would veto the proposed deal because it would provide permanent tax breaks to help well-connected corporations while neglecting working families,” said White House Deputy Press Secretary Jennifer Friedman.

Other Democrats also attacked the deal being negotiated by their own Senate majority leader.

“We need to grow the middle class, not punish those working hard to get by while always giving preferences and priority treatment to big corporations who can hire high-priced, well-funded lobbyists,” said Rep. Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee.

Asked if House Speaker John Boehner, R-Ohio, endorsed the deal, Michael Steel, a Boehner spokesman, said, “Chairman Camp, as always, has our full support.”

Millions of Americans face tax increases if Congress and the president cannot agree to extend a slew of expiring tax breaks. Some of the popular or visible tax deductions hanging in the balance are:

– A $4,000 deduction of higher-education expenses for middle-income Americans.

– A $250 deduction for elementary and secondary school teachers for school supplies.

– A tax deduction for companies, farms and restaurants that donate food to charities.

– The three-year tax depreciation for racehorses.

– A tax write-off for the first $15 million spent on film and television production.

– The seven-year depreciation for land improvements and support facilities at motorsports complexes.

One of the most closely watched items is the itemized deduction for state and local general sales taxes for taxpayers in seven states that don’t tax income. They are Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Tennessee and New Hampshire tax only dividend and interest income.

Sen. Patty Murray, D-Wash., who for a few more weeks heads the Senate Budget Committee, has pushed for a permanent extension of the sales-tax deduction for states without an income tax.

“She has also made it clear that we should not double down on tax breaks for big businesses while ignoring critical programs and tax breaks for middle-class families,” said Sean Coit, a spokesman for Murray.

Sen. Maria Cantwell, D-Wash., also was pushing for resolution.

“The state and local sales tax deduction is a matter of tax fairness for Washingtonians. This deduction means an average of more than $500 back in the pockets of nearly 1 million Washingtonian taxpayers,” Cantwell told McClatchy. “We must pass a bipartisan extension to ensure parity for Washingtonians and millions of Americans who claim state and local sales tax deductions.”

The sales tax issue is important for Texans and Floridians, too. Taxpayers in states without income tax have been able to take a standard deduction based on size of family and income, or to itemize their deductions. It’s a potentially a large deduction when there’s the purchase of a vehicle, boat or large home appliances and furniture.

“I think a lot of people don’t really realize it . . . a lot of them don’t know they can take the deduction,” said Lewis Leatherman, a veteran accountant in Saginaw, Texas. “It’s not something that gets a lot of publicity.”

The Senate in April passed a two-year bill to renew, extend or create 62 tax deductions. The House of Representatives, working on its own bill, identified six or seven deductions that could be made permanent.

But talks shifted after November’s elections, a problem for corporations that make hiring and investment decisions based on the tax code they expect.

“Some of members have gone ahead and made investments . . . there are others that are holding off, waiting to see what happens,” said Dorothy Coleman, vice president of tax policy for the National Association of Manufacturers. “For the people who have invested, not extending these (deductions) is going to amount to a tax increase. And if you don’t extend it, the people who are holding off investments might not make them, which is not good for the economy, either.”

One clear area of discontent was tax credits for energy produced through wind power.

The Center for American Prosperity, founded by the conservative billionaires David and Charles Koch, took out ads this week targeting certain House Republicans and asking constituents to contact their lawmaker in opposition to the tax break for wind energy. The Reid-Camp deal would phase out subsidies enjoyed by wind energy producers over a period of four years.

Heritage Action, the political arm of the conservative Heritage Foundation, wants a broader set of tax breaks eliminated.

“Things like the wind, NASCAR tax credits, we don’t think have any business being there,” said Dan Holler, a Heritage Action spokesman. “The same extenders package we see time and time again, and we think it’s bad policy.”

One company with much potentially at stake with the so-called NASCAR tax credit is the International Speedway Corp. in Daytona Beach, Fla. It boasts 13 premier motorsports facilities “which in total have approximately 831,500 grandstand seats and 525 suites,” according to its website. They include the Daytona and Homestead-Miami speedways in Florida, South Carolina’s Darlington Raceway, the Kansas Speedway in Kansas City, Kan., and the Auto Club Speedway in Fontana, Calif.

“We do understand Congress is making final decisions about tax extenders, and our hope is that they will act and preserve the tax treatment the motorsports industry has used for decades,” said Gentry Baumline-Robinson, International Speedway’s chief spokeswoman.

Aggravating the debate: annual deficits and rising debt.

“Expanding and making permanent so many (tax breaks) will deal a severe blow to fiscal responsibility, driving the debt up by hundreds of billions of dollars we just can’t afford,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “The price tag is a result of irresponsible horse trading whereby each side got to claim its favorite tax break without paying for it.”

Lesley Clark and David Lightman of the Washington Bureau contributed.