Democrats Resist No New Revenue Pledge Seen Hurting Deal: Taxes

Key Democrats are holding firm and insisting on wringing more money for the federal government out of any tax reform this year, defying a push to go along with a revenue-neutral approach to win votes.

Two Democrats considered to be possible swing votes on the House committee working on a tax overhaul -- Representative Richard Neal from Massachusetts and John Larson of Connecticut -- say they doubt a revenue-neutral proposal would attract Democratic votes, casting a cloud over what many tax analysts and lobbyists say is a primary ingredient for any broad deal, Bloomberg BNA reported.

“I’d be very doubtful about that,” Neal said when asked whether a revenue-neutral plan could generate support among Democrats. “That would be problematic for me.”

The issue gained new attention as a compromise on the Senate side looked possible this week. Max Baucus, the Montana Democrat who is Senate Finance Committee chairman, declined to rule out putting a revenue-neutral bill before his committee. The ranking Republican on the committee, Senator Orrin Hatch of Utah, told reporters that Baucus had told him he would, in fact, propose a revenue-neutral plan.

In the end, Baucus told reporters that new revenue will probably become part of tax reform as it moves through Congress and heads to the president for signature. Still, his reported openness to a revenue-neutral plan in the committee contrasted with his remarks a day earlier that he was committed to seeking revenue through tax reform.

After those remarks, spokespersons for Baucus and Hatch issued a joint statement emphasizing collaboration on tax reform and downplaying the significance of revenue neutrality.

Code Reset

“The main question is not whether tax reform raises revenue,” according to the release. “It’s what is done with the revenue raised through closing loopholes, simplifying the code and making other adjustments. That is the question that still needs to be answered and will be resolved through this process.”

The nature and size of those adjustments have mobilized lobbyists and will help shape the fate of tax reform.

On July 10, the Businesses United for Interest and Loan Deductibility Coalition released a study it commissioned through Ernst & Young indicating that cutting the interest deduction for corporations would hurt the economy.

An across-the-board reduction of 25 percent in corporate interest expenses, to reduce the corporate income tax rate by 1.5 percentage points, would reduce economic growth by 0.2 percent and investment by 0.3 percent, according to the study.

Democratic Holdouts

In general, Republican lawmakers have urged tax revenue-neutral reform, while Democrats have called for reform to generate additional money to reduce the deficit. Still, House Ways and Means Committee Chairman Dave Camp told BNA that he is continuing to look for ways to attract Democratic votes.

Larson didn’t exclude the possibility of a revenue-neutral bill if lawmakers can spot another way to boost revenue, perhaps through assumptions of economic growth and job generation -- although he added that so far, he has not seen evidence that economic activity will generate the boost Democrats seek.

“I’m not the kind of person who rejects anything out of hand,” Larson said. He said Republicans refusing to consider additional revenue is a nonstarter and that continuing meetings among committee members preserve the potential for a deal.

“Is there maneuverability on their part?” Larson said. “That’s the whole reason you sit down.”

As long as lawmakers focus on economic growth, jobs and simplicity in the tax code, Congress has a “great business model” for pursuing tax reform, Larson said.

Difficult Vote

One senior Ways and Means Committee member, Representative Pat Tiberi, an Ohio Republican, told BNA rank-and-file Democrats are under pressure to toe the party line on raising revenue.

“It’s going to be extraordinarily difficult for them to do that if in the end their leadership is going to come out opposed to everything that we do,” he said.

Still, if Senate Democrats pass tax reform legislation, that may make it easier for some House Democrats to buck their leadership, Tiberi said. He said Camp has reached out to minority members on a daily basis for their input and support.

The ranking Democrat on the committee, Representative Sander Levin of Michigan, told BNA that additional revenue has to be part of the equation to move forward on tax reform.

He also tamped down the suggestion that any Democrats on the panel might consider forgoing revenue to secure a deal to rewrite tax laws.

“That’s wrong,” Levin said. “I think we all feel that there have to be additional revenues.”

To contact the editor responsible for this story: Cesca Antonelli at fantonelli@bloomberg.net

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