Bush tax cuts take backseat in debt talks

Democratic lawmakers are having a mixed reaction to a tax discussion that currently is focused more on corporate jets than the Bush tax cuts.

With just weeks left until the debt-limit deadline, Democrats are continuing to insist — over steep GOP opposition — that new revenues be part of any deficit-reduction plan that raises the $14.3 trillion ceiling.

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President Obama and Democrats have vowed not to extend the Bush-era rates for the highest earners again, after a deal to do just that was enacted late last year. But with some Republican lawmakers having sounded open to scrapping ethanol subsidies to help roll back the federal debt, many Democrats have shown more interest recently in talking up narrower provisions that do benefit the wealthy, but also are worth far less in revenue than the Bush cuts.

“We are spending trillions of dollars through our tax code. There are more than enough options, if we are willing, in a clear-eyed, responsible way, to reduce tax expenditures to get the revenue side of this ledger balanced,” said Sen. Chris Coons (D-Del.), who indicated the time would eventually come for a showdown over the highest marginal tax rates.

Still, other Democrats — while stressing the need to look at the tax credits and deductions that now account for roughly $1.1 trillion a year — caution that their party should not punt on the Bush tax cuts until the end of next year, when they are set to expire once again.

“The tax breaks for the best-off, the extension of the Bush breaks, needs to be a front-and-center part of the conversation,” said Sen. Jeff Merkley (D-Ore.), who took to the Senate floor recently to call out a $126 million tax break for the horse-racing industry. “We’re talking about a 10-year vision. It should be part of the deal.”

But in recent days, the administration has been emphasizing a host of tax provisions it would like to alter to help reduce the deficit — from an accounting method called “last in, first out” (LIFO) that reduces some manufacturers’ tax bill to credits and deductions used by the oil-and-gas industry.

In a Wednesday news conference, the president hammered a depreciation provision for corporate jets, mentioning it six times.

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“I think it's only fair to ask an oil company or a corporate jet owner that has done so well to give up that tax break that no other business enjoys,” Obama said. “I don't think that's real radical. I think the majority of Americans agree with that.”

But as it turns out, ending the jet tax break would only save around $3 billion over a decade, while rolling back tax expenditures for oil-and-gas would bring in roughly $21 billion and a proposal aimed at hedge fund managers would collect some $15 billion over that same span.

According to estimates from last year, ending the Bush tax cuts for income over $250,000 for couples would have brought an extra $700 billion into the Treasury.

All that said, congressional aides say there are logical reasons why the Bush tax cuts are not playing more of a role in the current discussion.

For one thing, last year’s tax-cut compromise, hashed out after Republicans displayed blanket opposition to raising any of the Bush rates, means those cuts don’t expire again until the end of 2012 — after both parties battle for control of the Oval Office and both chambers of Congress.

As one Democratic aide put it, the next steps for the Bush tax cuts would be “all about” 2012. And, as last year’s tax-cut compromise and the barely averted government shutdown from earlier this year illustrate, Washington likes to take hard decisions down to the wire.

For their part, Republicans continue to call for permanently retaining the Bush cuts, saying it would hurt small businesses to let rates rise at the highest levels, and have generally rejected the Democratic push to eliminate tax expenditures to help reduce the deficit.

The top GOP tax-writers, Rep. Dave Camp of Michigan at House Ways and Means and Sen. Orrin Hatch of Utah at Senate Finance, have said that tax credits and deductions should be eliminated in a broader push to reform the tax code. A Senate aide called the current Democratic messaging “populist pandering.”

But while some staffers said they would not be surprised if Democrats decided to fight another day on the Bush tax cuts, others were more wary.

“The revenue proposals the White House has floated are either tiny in this context — like the much-touted tax hike on corporate jets — or face serious opposition from Senate Democrats, like LIFO, which makes you suspect they’re hiding the ball here,” one GOP aide said.

Still, even some Democrats who want the Bush tax cuts to be a larger part of the current discussion say the biggest roadblock is continued GOP intransigence.

“They’re on this ideological quest to protect millionaires and billionaires,” said Rep. Jan Schakowsky (D-Ill.), who has introduced legislation that would raise income tax rates for those making more than $1 million a year. “It’s unbelievable to me, this kind of poker game they’re willing to play.”

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