Dems flip position on tax reform to embrace Obama’s new proposal

Democrats have dropped the idea that tax reform should be revenue neutral and are embracing President Obama’s plan to raise corporate tax revenue to pay for infrastructure. 

The Democratic flip has lawmakers scrambling to reconcile past statements with Obama’s new proposal. 

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Democrats thought they were on safe ground touting revenue-neutral tax reform after Obama endorsed the idea at a meeting with Republicans earlier this year.

With the economy stalling in the second quarter, Obama now wants to raise revenue from corporate tax reform to pay for an infrastructure bank in the hope it will spur job creation.

The plan struck a discordant note with Democrats, who had endorsed reform that did not raise money from corporate coffers to pay for federal programs.

Speaking at the National Press Club last year, Sen. Charles Schumer (D-N.Y.) took on liberals who advocated using corporate tax reform as a revenue stream.

“Some on the left have suggested corporate tax reform could be a source for new revenue, but here I disagree,” he said. “To preserve our international competitiveness, it is imperative we seek to reduce the corporate rate from 35 percent, and do it on a revenue-neutral basis.”

Schumer released a statement Tuesday praising the president’s new plan, which would do what he seemed to argue against less than a year ago.

“While deficit reduction continues to be an important goal, more and more decision-makers are realizing that our greatest problem is the decline in middle-class incomes,” he said. “With these speeches, the president is adroitly and powerfully beginning to move the debate in that direction. It is both substantively and politically the right thing to do.”

Schumer told The Hill that he had changed his position because Republicans agreed to raise only $617 billion in new taxes in the New Year’s Eve fiscal-cliff deal.   

 “That was before we didn’t raise enough revenues in 2012,” Schumer said of his previous statement. “My goal would have been to keep corporate neutral and raise enough revenues [through other means] but they didn’t go for it.”

Obama’s new corporate tax plan also conflicts with a revenue-neutral proposal Sens. Ron Wyden (D-Ore.) and Mark Begich (D-Alaska) co-sponsored with Sen. Dan Coats (R-Ind.).

Senate Republicans said Obama pledged to support revenue-neutral corporate tax reform when he met with them privately in March, causing a swell of optimism.

“If he’s agreed, and he has, that the lowering of rates with the corporate tax will be revenue neutral, there’s no reason we can’t do that now,” Sen. Jeff Flake (R-Ariz.) told Reuters at the time.

Coats criticized Obama Tuesday for reversing his support for a corporate tax overhaul that does not raise taxes. It had appeared to be one of the few areas of common ground between the White House and Senate Republicans.

Coats said Republicans were left “scratching our heads” about what he characterized as Obama’s flip-flop.

After weeks of wrestling over internal divisions on immigration reform and the annual appropriations bills, Republicans were happy to watch Democrats scramble to respond to Obama’s tax plan.

“Gonna have some Dems dancing today,” quipped a GOP aide.

Begich, who faces a tough reelection next year, said he could support spending additional federal revenue on infrastructure programs. But Begich said his initial preference was to explore corporate tax reform from a starting point of revenue neutrality.

He said his bigger concern at this point is to make sure corporate tax reform is expanded to cover small businesses that don’t pay corporate tax rates, yet drive much of the nation’s economic activity.

Sen. Mark Pryor (Ark.), another of the Senate’s most vulnerable Democrats, said he wants to review the president’s plan but said he favors devoting revenue from tax reform to paying down the debt.

Sen. Mark Warner, a Democrat who faces a competitive reelection in Virginia, said Tuesday that corporate tax reform needs to be paired with individual tax reform to work well. 

He spent months in the last Congress negotiating with Republicans over a possible deal to reduce the deficit with comprehensive tax and entitlement reforms.

Senate Finance Committee Chairman Max Baucus (D-Mont.) put a positive spin on Obama’s announcement.

“It’s a major development. The president is for tax reform. That’s the major takeaway. There are many days between now and the end of next year when this will ebb and flow and so forth,” he said. “This is a major step forward.”

But Republicans and one senior Democratic aide privately conceded that by singling out corporate tax reform, the president had hampered the impetus for comprehensive tax reform.

Sen. Orrin Hatch (Utah), the ranking Republican on the Finance Committee, said Obama had undercut Baucus.

“All I can say is what he said really doesn’t make much sense. It certainly flies off of what he, [former Treasury] Secretary [Timothy] Geithner, Sen. Schumer and others have said when they said that they were for a revenue neutral tax code,” Hatch said.

Hatch added that the calls from Democrats to raise hundreds of billions of dollars through rewriting the corporate tax code are “undermining the chairman of the Finance Committee, and I really don’t think they’re very serious about tax reform.”

— Bernie Becker contributed to this report.