Tish Wells / McClatchy

The dome of the U.S. Capitol in Washington D.C.

Democrats cry foul over tax break that would raise deficit

Published: Tuesday, May. 6, 2014 - 3:12 pm

Republicans in the House of Representatives are expected to rally Wednesday around a business tax break that’s likely to cost the government $155.5 billion over 10 years.

They’d do it without offsetting spending cuts or tax increases. Most lawmakers have long decried such deficit spending, a practice that fueled the insurgent tea party movement and its campaign to pare the size and reach of government .

And protests over spending above incoming revenue have helped stall Democrat-backed emergency programs such as extended unemployment benefits.

This latest battle over tax breaks_ notably the research and development tax credit scheduled for a House vote Wednesday _ is a vivid example of the clash between very different political philosophies, as well as a strategy of political amnesia when the issue demands it.

Democrats have long contended that emergencies need not be paid for. For months, they’ve urged extending the emergency jobless benefits, which expired Dec. 28. Republicans tried to block it, arguing not only that such benefits often discourage people from looking for work but also that they cannot be afforded when the federal debt is so high.

In April, the Senate ended a months-long impasse and passed legislation to extend unemployment insurance for the long-term jobless through the end of May. Five Republicans joined Senate Democrats on a plan with a series of offsets, including a change in companies’ pension payments. The House hasn’t acted on the bill.

Republicans defend tax cuts by saying people will have more to spend, businesses will have new incentive to invest and hire, government will shrink and the economy will boom . The House plan not only makes the tax break permanent, but it also raises the tax credit rate from 14 percent to 20 percent, all without accounting for the billions in revenue the government would lose.

“It is allowing businesses who invest to keep more of that investment, to plow it back into research,” said House Majority Leader Eric Cantor, R-Va. Added Rep. Kevin Brady, R-Texas, one of the bill’s chief sponsors: “I’m tired of losing ground to America’s global competitors.”

Democrats cry hypocrisy.

“All of the wringing of hands and gnashing of teeth with reference to the deficit seems to go by the boards when the Republicans talk of tax cuts,” complained House Minority Whip Steny Hoyer, D-Md.

They also contend that many economists say unemployment insurance benefits are spent quickly and help promote growth.

The White House said Tuesday that if the bill reached President Barack Obama’s desk _ which is highly unlikely _ he’d veto it.

“The administration wants to work with Congress to make progress on measures that strengthen the economy and help middle-class families, including pro-growth business tax reform,” an administration statement said. “However, making traditional tax extenders permanent without offsets represents the wrong approach.”

The House is expected to vote Wednesday on making the research and development measure permanent. Begun in 1981 and extended 15 times, it has broad bipartisan support and is considered an important incentive for business.

“We’re hoping it gets extended on a permanent basis this time,” said Christina Crooks, the director of tax policy for the National Association of Manufacturers. “Manufacturers are the largest user of the R&D tax credit, and the credit creates jobs.”

While manufacturers expect the tax credit to be extended again, at minimum, and are circulating a letter to lawmakers that encourages a “yes” vote, they complain that the political wrangling weighs against stronger economic growth.

“Making the R&D credit permanent would get rid of the uncertainty when the . . . credit lapses,” said Crooks, who noted that the international Organization for Economic Cooperation and Development now ranks the United States 22nd among industrialized nations on research incentives for manufacturing and innovation. “Our international competitors aren’t standing by!”

The research and development credit is part of a House Republican package of six tax breaks that are likely to come up for votes soon. The total cost is an estimated $310 billion over 10 years, according to Congress’ Joint Committee on Taxation. Critics charge that the tax breaks are little more than corporate welfare, especially since businesses already are sitting on piles of earnings rather than using the money to invest in their companies.

The price tag, said Rep. Sander Levin of Michigan, the top Democrat on the tax-writing Ways and Means Committee, “is more than three times what we spend annually on education, job training and social services. It is five times more than we spend on veterans. It is five times more than we spend on medical research and public health.”

The Democratic-run Senate is expected to take up its own tax-break package later this month. Its $85 billion plan, most of which isn’t paid for, includes a two-year extension of the research and development credit.


Email: dlightman@mcclatchydc.com, khall@mcclatchydc.com; Twitter: @lightmandavid, @KevinGHall.



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