POLITICS
11/25/2014 04:17 pm ET Updated Nov 26, 2014

Obama Threatens To Veto Corporate Tax Cut Deal For Locking Out Middle Class

WASHINGTON -- The Obama administration on Tuesday threatened to veto a bipartisan tax deal that would reportedly create permanent tax perks for corporations without advancing key tax breaks for middle- and low-income families.

"The President would veto the proposed deal because it would provide permanent tax breaks to help well-connected corporations while neglecting working families,” White House spokeswoman Jennifer Friedman said in a statement provided to HuffPost.

Congressional negotiators from both parties and both chambers have been working since the midterm elections to strike a deal extending a host of business tax preferences that, according to a report in PoliticoPro, would cost upwards of $400 billion over the next 10 years.

But the administration quickly cried foul over providing billions of dollars in permanent corporate aid without including aid for the middle class. Both Treasury Secretary Jack Lew and White House press secretary Josh Earnest delivered clear rebukes of the talks on Monday.

"An extender package that makes permanent expiring business provisions without addressing tax credits for working families is the wrong approach, at the expense of middle class families," said Lew in a press statement. "Any deal on tax extenders must ensure that the economic benefits are broadly shared."

"The reports suggest that there may be some in Congress who want to provide tax relief to businesses and to corporate insiders, but not [ensure] that those benefits are shared by middle-class families," Earnest told reporters on Monday. "So certainly the administration would not be supportive of a package that provided relief to corporations without providing relief to middle-class families."

The White House resistance has confused some Democrats. And aide to one Senate Democrat said the administration had been included in talks between Senate Majority Leader Harry Reid (D-Nev.), Senate Finance Committee Chairman Ron Wyden (D-Ore.) and House Ways and Means Committee Dave Camp (R-Mich.).

"Everybody's been engaged, and there never was a deal locked in," the aide told HuffPost. "What we're all trying to figure out is whether the White House's objections are truly based on the merits of the deal, or whether they are just trying to kill any deal because they think that anything that lowers the baseline is going to make it harder for them to cut a crappy corporate tax deal with Republicans next year. I personally lean toward the latter … and I do not feel comfortable with the prospect of what the White House and [Sen.] Chuck Grassley [R-Iowa] will come up with next year."

Kentucky Republican Mitch McConnell has said inking a broad corporate tax reform deal with the Obama administration will be one of his top priorities next year. Making temporary tax cuts permanent makes it harder to cut a broader deal, because Congressional accounting allows lawmakers to count the expiration of a temporary deal as budget savings that reduces the deficit.

Earlier on Tuesday, White House aides had told HuffPost that the administration's resistance to the deal did not constitute a veto threat, and claimed they had only seen the package outlined in press reports.

The reported package would make the research and development tax credit a permanent part of the tax code, despite criticism that the broad provision allows companies to deduct an extremely wide array of costs from their IRS bills. The deal would also permanently codify a corporate tax perk that lets companies deduct up to $25,000 a year from their tax bills for purchasing new equipment.

A host of other tax benefits approved by the Senate finance committee in April would also be extended for two years. Those provisions include a rule allowing corporations to avoid paying federal taxes on income stashed overseas until they bring the money back into the country. The only corporate tax credit that would be allowed to expire under the reported deal is for wind energy, a program broadly supported by environmental groups.

In exchange for the business perks, Senate Democrats secured a provision to allow middle-class families to deduct up to $2500 a year in college tuition costs from their tax bills.

White House aides told HuffPost that President Barack Obama is particularly concerned about any deal that would not extend key provisions of the Earned Income Tax Credit (EITC) and the child tax credit that expire at the end of 2017. About 50 million people benefit from these tax credits each year. Failing to extend three key provisions would force 1.8 million Americans into poverty, and further erode the income of an additional 14.6 million who already live below the poverty line, according to an analysis by the Center on Budget and Policy Priorities.

Both tax programs were once Republican priorities. The child tax credit was expanded under President George W. Bush's tax cuts, and the GOP at one time celebrated the EITC for only rewarding people who work for a living -- setting it apart from other poverty assistance programs, like food stamps, that do not come with work requirements.

Obama has leverage over the talks, since the EITC and child tax credit provisions do not expire for another three years, while the corporate breaks already expired on Dec. 31, 2013, with companies holding out hope for a deal by year-end to prevent their tax bills from going up for the current year.

But after 2017, eligibility requirements for the child tax credit will narrow, shutting out many very poor families who currently qualify under provisions enacted by both Bush and Obama. Obama's 2009 economic stimulus package also lessened the EITC's marriage penalty and provided additional aid to families with three or more children -- provisions that are likewise set to expire after 2017.

The 2018 effects would predominantly hit low-income Americans. A married couple with two children making between $28,000 and $50,000 a year would lose out on about $460 annually, according the CBPP analysis, while the same family of four making $15,200 would lose about $1750 a year.

Leading House Democrats piled on criticism of the deal after the White House issued its veto threat.

"The reported deal on so-called 'tax extenders' prioritizes corporate interests while doing far too little for struggling American families," said Rep. Chris Van Hollen, the top-ranking Democrat on the Budget Committee. "The package would provide a permanent boon to large corporations, even those that renounce their U.S. citizenship and invert. And adding insult to injury, the proposed deal chooses to leave behind working families and would make things harder for millions of Americans."

"It is fiscally irresponsible to use expiring tax provisions to make permanent changes to our tax code at a cost of more than $400 billion," said Rep. Sandy Levin (D-Mich.), the top Democrat on the Ways and Means Committee. "We should go back to the drawing board and create a package that benefits working families."

Republicans have decried deficit spending under Obama, and insisted that deficit reduction work emphasize spending cuts, rather than raising taxes for corporations or the wealthy. But some hard-line conservatives also oppose the selective nature of many of the perks in annual tax deals like the one currently being negotiated. In April, the powerful tea party group Club for Growth came out against the two-year tax extension package incorporated into the current talks, urging lawmakers to kill the bill and consider broader tax reform instead.

This article has been updated to reflect comments from a Senate aide, Rep. Van Hollen and Rep. Levin.

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