House tax break bill shows 'modest' may be Washington's motto in 2015

Facing a looming year-end deadline, the House on Wednesday overwhelmingly passed a bill to extend more than 50 tax breaks for millions of individuals and businesses, approving it 378 to 46.

But it’s a more diminished measure than originally hoped for – reflecting the politics at play as Congress readies for a new world order where Republicans control both chambers.

Tax reform is one mountain in the altered political landscape that GOP leaders and the White House hope they can climb together. But it’s unlikely the two sides will be able to agree on a comprehensive reform, just as they clashed over earlier negotiations to extend tax breaks.

A far-reaching tax reform deal “is far too complex and controversial for the next Congress to deal with given the hyper-partisanship that still surrounds politics on Capitol Hill,” says Jim Manley, a former aide to Senate majority leader Harry Reid (D) of Nevada. 

A slice might be doable, and on Wednesday, President Obama suggested starting discussions on just corporate taxes. But as he admitted to corporate executives at a Business Roundtable meeting on Wednesday, everyone favors tax reform “in the abstract” while opposing some of the specifics. 

That was evident last month, when Republicans and Senator Reid were close to a deal on making some of the tax breaks permanent – rather than having to revisit them every one or two years when they expire. The tax breaks have become a critical part of the economy, affecting 1 in 6 taxpayers.

But that deal blew up over immigration, ideology, and a presidential veto threat, and suddenly shrank to an extension that lasts until only Dec. 31 – meaning that everyone from teachers to commuters to corporations will be able to use the breaks on their 2014 tax returns, but 2015 and beyond are left hanging.

Ever since the president announced his executive action to protect millions of illegal immigrants from deportation, Republicans have warned that act will “poison the well” on immigration reform and other legislation. That appeared to be the case with the tax break “extenders.”

Senator Reid was reportedly fine with a deal to permanently extend tax breaks until the president deemed it too friendly to business and insisted that it include tax breaks that benefit poor working families and families with children. 

When he threatened a veto, Republicans said it was game over. They objected that the provisions he wanted would benefit the millions of undocumented workers whom the president had just spared. 

“The president killed it. Period,” said House Speaker John Boehner (R) of Ohio, at a press conference this week.

Immigration is also playing a role in budget negotiations as lawmakers race against a Dec. 11 deadline, when funding for the federal government runs out.

A working plan proposed by Speaker Boehner – to fund through Sept. 30 all government agencies except the Department of Homeland Security, which implements immigration policy – reflects the speaker’s attempt to accommodate hard-line conservatives. They want to use the budget as leverage against the president’s immigration action.

If Boehner's budget plan or something similar survives tea party criticism and becomes a reality, it will keep the immigration brinkmanship going into early next year when funding for homeland security runs out.

Interestingly, Senator Reid is open to this hybrid budget package, and he was also OK with the permanent tax break deal before the president threatened a veto. That’s a sign that he’s already moving into a more conciliatory role as minority leader, says Rep. John Fleming (R) of Louisiana, who is pushing for an even tougher budget deal. 

“He’s got to be thinking about preserving minority rights” when the tables turn, Congressman Fleming told reporters on Tuesday.

Mr. Manley says that’s just Reid trying to clear the decks before the start of the new year. Indeed, the White House is also reportedly open to Boehner's budget plan.

On the House tax breaks, neither Reid nor the White House have switched on any red lights that might signal strong disapproval of the bill – which now moves to the Senate. But that’s because the package is modest, the operative word for bipartisan dealmaking next year, at least based on this example.