McConnell And Obama Are Already Planning To Undercut Liberal Democrats In Congress

11/05/2014 04:51 pm ET | Updated Nov 05, 2014

WASHINGTON -- Sen. Mitch McConnell (R-Ky.) said Wednesday that he and President Barack Obama are already discussing plans to cut corporate tax rates and pass free trade agreements, following the GOP's major gains in Tuesday's elections.

The comments from McConnell, who is expected to become the next Senate majority leader, shed light on the Republicans' potential strategy next year. For months, Republicans have argued that if they controlled both chambers of Congress, Obama would have to moderate his own liberal positions and give more ground in legislative talks. But McConnell's early agenda suggests a different strategy: He will seek to exploit economic policy rifts between Obama and congressional Democrats to press for deals on issues where the president and Republicans already agree.

"Trade pacts," McConnell said at a press conference Wednesday. "The president and I were just talking about that, right before I came over here. Most of his party is unenthusiastic about international trade. We think it's good for America, and so I've got a lot of members who believe that international trade agreements are a winner for America."

The senator added, "I think he's interested in moving forward. I said, 'Send us trade agreements. We're anxious to take a look at them.'"

Obama has struggled to sell Democrats on the Trans-Pacific Partnership, a pact his administration is negotiating with 11 other Pacific nations. Leaked drafts of the text have sparked a host of liberal concerns. Consumer advocates are worried about potential restrictions on food safety and other regulations, environmentalists fear it will undermine environmental protections, and global health experts are concerned it will curb access to low-cost generic medicines.

U.S. Trade Representative Michael Froman has a testy relationship with many Democrats in Congress and with many liberal policy organizations, who accuse him of making promises on key Democratic priorities and then retracting them as trade negotiations continue.

Large swaths of the Democratic Party are simply wary of free trade deals in the mode of the 1993 North American Free Trade Agreement. Some studies have concluded that such deals exacerbate income inequality and depress wages. While the NAFTA and World Trade Organization treaties have helped to expand overall U.S. economic growth, many economists argue they have had substantial negative consequences for American workers.

The U.S. Chamber of Commerce, however, is a strong supporter of the Trans-Pacific Partnership, which has not yet been finalized. The pre-eminent American corporate lobbying group almost exclusively supports Republican candidates.

Tax reform could prove somewhat less controversial among congressional Democrats -- although Obama has supported a plan to close corporate tax loopholes and reduce the corporate tax rate for years with nothing to show for it.

"The president's indicated he's interested in doing tax reform," McConnell said Wednesday. "We all know having the highest corporate tax rate in the industrialized world is a job exporter." He added, "[Obama]'s interested in that issue and we are, too."

The U.S. does have a high official rate of 35 percent for the largest corporations. But a 2013 Government Accountability Office report found that extensive loopholes and tax credits allow companies to pay an average rate of just 12.6 percent, which is in line with or below the rates of other developed countries.

Obama has supported "revenue-neutral" tax reform, in which all the revenue gains from closing corporate loopholes would be balanced by the losses from lowering the corporate rate. Many Democrats would prefer to use at least some of those revenues to fund progressive policy items. Republicans generally favor corporate tax cuts.

Also on Wednesday, the president said he would be open to providing a corporate tax holiday -- known as "repatriation" in tax circles -- in which for a period of time, companies with cash stashed overseas would be allowed to bring it back to the U.S. at a reduced rate. Democrats in Congress are generally skeptical of the idea, and studies suggest that the Bush administration's 2004 effort served to drive up the deficit without creating jobs.

Obama said he would consider using the immediate revenues generated by a tax holiday to help finance a broader legislative package that would include Democratic priorities like infrastructure spending.

"Repatriation," Obama said. "There is an opportunity for us to do a package that is good for business, good for jobs."

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