Democrats Renew Push for Business Tax Increases After Deal

Democrats seeking to use the next phase of deficit-reduction talks to raise taxes for private equity managers, oil companies and high-income earners will face continued opposition from Republicans who will have the procedural power to stop them.

The debt-limit bill headed for final passage in the Senate today would empower a 12-member committee of lawmakers to seek $1.5 trillion in deficit cuts, with a Dec. 23 deadline for congressional action. Democrats, who didn’t get any revenue increases in the debt ceiling compromise Congress is considering, are likely to return to their previous proposals, said Representative Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee.

“It has to be done in a balanced fashion,” Van Hollen told reporters yesterday. “It has to include closing these corporate tax loopholes for special interests and looking at other revenue sources from the very top income earners.”

The biggest barrier to including revenue in the recommendations issued by the new committee will be the same one that prevented Obama from securing more revenue in this month’s deal: Republican opposition to tax increases of any kind, including curbs on tax breaks.

Elvis ‘More Likely’

“The six Democrats will wail and gnash their teeth about the need to have tax increases, and the six Republicans will tell them it’s more likely that Elvis is going to show up here than we’ll agree to that,” said Kenneth Kies, a tax lobbyist at the Federal Policy Group in Washington whose clients include General Electric Co. (GE) and Caterpillar Inc. (CAT)

That won’t stop Democrats from trying.

“We live to fight another day in trying to get some additional revenues into this equation,” said Senator Mary Landrieu, a Louisiana Democrat.

President Barack Obama has recommended taxing the profit share -- or carried interest -- earned by private equity managers, venture capitalists and others at ordinary income tax rates and not the lower capital gains rate. He also has called for ending tax benefits for oil and gas companies and for capping the itemized deductions of upper-income Americans.

Senate Minority Leader Mitch McConnell of Kentucky and House Speaker John Boehner of Ohio each would appoint three fellow Republicans to the committee. That structure lets them exclude members willing to consider new revenue and thus prevent a majority of the committee from raising taxes.

‘No-Tax’ Votes

“You end up with six no-tax-increase votes, and it’s hard to see how you do business,” said Clint Stretch, managing principal of tax policy at Deloitte Tax LLP in Washington.

Representative Dave Camp, a possible appointee to the committee, said he isn’t open to raising more revenue.

“What we need to do is find ways to cut spending,” said Camp, a Michigan Republican who is chairman of the House Ways and Means Committee.

One potential difference is that under the debt-ceiling compromise, failure by the committee to act or to advance its proposal through Congress would trigger automatic cuts in programs that both parties favor, including defense spending.

“It really just becomes an issue of defense vs. high- income,” said Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a Washington research group that favors programs to assist low-income individuals.

Republican Opposition

Representative Tom Price, a Georgia Republican, said his party would oppose tax increases.

“We’re going to do our job and make certain that those defense reductions don’t occur in a way that compromises our national security,” he said. “There won’t be any tax increases.”

The likely rules governing the committee’s search for deficit reduction make it tough for lawmakers to address a broader overhaul of the tax code, and Camp said he wants those efforts to remain outside the panel’s jurisdiction.

The Congressional Budget Office’s revenue baseline, or yardstick, assumes that the Bush-era income tax cuts will expire as scheduled at the end of 2012. Extending most of the cuts and allowing high-income cuts to expire, as Democrats want, would be viewed as a tax cut. That’s because rates would be lower than those that take effect automatically if Congress did nothing.

Baseline Complication

“They can’t mess with rates, because the rates are high in the baseline,” Stretch said.

The committee could choose its own yardstick that would assume the tax cuts were extended and count revenue increases on top of that, said Jay Carney, Obama’s press secretary.

Because the committee is bipartisan, at least one Republican would have to agree to a different baseline.

In a fact sheet released July 31, the White House said Obama could require action on revenue by vetoing an extension of tax cuts for high earners at the end of 2012.

Using that veto to target high-income tax breaks would require Congress to decouple them from the other tax cuts. Also, Obama could reject tax cuts for everyone until Congress splits up the high-income and low-income cuts. Last year, a Congress controlled by Democrats didn’t decouple the cuts, and Obama signed a two-year extension of all of the tax breaks.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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