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. 

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 SchumerCharles (Chuck) Ellis SchumerSchumer: GOP efforts to identify FBI informant 'close to crossing a legal line' Patients deserve the 'right to try' How the embassy move widens the partisan divide over Israel MORE (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 WydenRonald (Ron) Lee WydenHillicon Valley: Facebook, Google struggle to block terrorist content | Cambridge Analytica declares bankruptcy in US | Company exposed phone location data | Apple starts paying back taxes to Ireland Firm exposes cell phone location data on US customers Overnight Finance: Watchdog weighs probe into handling of Cohen bank records | Immigration fight threatens farm bill | House panel rebukes Trump on ZTE | Trump raises doubts about trade deal with China MORE (D-Ore.) and Mark BegichMark Peter BegichPerez creates advisory team for DNC transition The future of the Arctic 2016’s battle for the Senate: A shifting map MORE (D-Alaska) co-sponsored with Sen. Dan CoatsDaniel (Dan) Ray CoatsHillicon Valley: White House eliminates top cyber post | Trump order looks to bolster agency CIOs | Facebook sees spike in violent content | Senators push NIH on tech addiction | House to get election security briefing Trump picks billionaire military contractor to lead intelligence board Top Dem questions CIA campaign to secure Haspel nomination MORE (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 FlakeJeffrey (Jeff) Lane FlakeTrump yuks it up to deflect Senate critics Overnight Defense: Senate confirms Haspel as CIA chief | Trump offers Kim 'protections' if he gives up nukes | Dem amendments target Trump military parade Hillicon Valley: Lawmakers target Chinese tech giants | Dems move to save top cyber post | Trump gets a new CIA chief | Ryan delays election security briefing | Twitter CEO meets lawmakers MORE (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 PryorMark Lunsford PryorMedicaid rollback looms for GOP senators in 2020 Cotton pitches anti-Democrat message to SC delegation Ex-Sen. Kay Hagan joins lobby firm MORE (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 WarnerMark Robert WarnerSchumer: GOP efforts to identify FBI informant 'close to crossing a legal line' Sunday shows preview: Lawmakers weigh in after Texas school shooting Top Intel Dem warns Republicans: Don't try to out FBI source MORE, 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 BaucusMax Sieben BaucusClients’ Cohen ties become PR liability Green Party puts Dem seat at risk in Montana Business groups worried about Trump's China tariffs plan MORE (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 HatchOrrin Grant HatchDemocrats urge colleagues to oppose prison reform bill The Hill's Morning Report — Sponsored by CVS Health — Trump’s love-hate relationship with the Senate Senate GOP anger over McCain insult grows MORE (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.