Harry Reid, Tax Extender Basics, And A Suggestion For Senate Progressives​

by Gaius Publius

Two of the most interesting lame duck battles are shaping up in the Senate. The first is the nomination of Antonio Weiss for an under-secretary job at Treasury. His nomination is strongly opposed by Elizabeth Warren and others. For more, see here (me on Warren), here (The Nation on Warren), here (Howie Klein on the pushback) and here (me on the pushback, plus some soothing music).

The second is the battle over end-of-the-year "tax extenders" (extensions of tax breaks that expire each year). Consider this a backgrounder so you won't have to play catch-up when the December flies start hitting the ointment. I'll also consider whose flies are playing in this multi-sided game, and offer a simple suggestion to Senate progressives — if you play a strong hand, you won't do worse than playing a weak one.

Opening Salvo in the Liberal Press

The public fuss among progressives started, it seems to me, when Igor Volsky penned a strong piece at ThinkProgress called:

Congress Poised To Eliminate Key Tax Breaks For Middle Class, Provide Permanent Tax Breaks For Corporations

You can bet that got progressives' attention. In it he says:

Senate Majority Leader Harry Reid (D-NV) has reached a compromise with House Republicans on a package of tax breaks that would permanently extend relief for big multinational corporations without providing breaks for middle or lower-income families, individuals with knowledge of the deal tell ThinkProgress.

Under the terms of the $444 billion agreement, lawmakers would phase out all tax breaks for clean energy and wind energy but would maintain fossil fuel subsidies. Expanded eligibility for the Earned Income Tax Credit and the Child Tax Credit would also end in 2017, even though the Center for Budget and Policy Priorities estimates that allowing the provisions to expire would push “16 million people in low-income working families, including 8 million children into — or deeper into — poverty.” The proposal would help students pay for college by making permanent the American Permanent Opportunity Tax Credit, a Democratic priority.

Meanwhile, two-thirds of the package would make permanent tax provisions that are intended to help businesses, including a research and development credit, small business expensing, and a reduction in the S-Corp recognition period for built-in gains tax.

The costs of the package will not be offset.

A lot to unpackage, and a lot to hate if true:

▪ "permanently extend" corporate tax breaks
▪ "phase out all tax breaks" for clean energy
▪ "maintain fossil fuel subsidies" (!)
▪ expand some "Democratic priorities"
▪ the cost "will not be offset"

Also, two more pieces — Reid is painted as the perp, and Volsky's source is "individuals with knowledge of the deal". What to make of this?

Progressive Pushback Was Immediate

Criticism of the "deal" has come from a number of quarters, and rightly so. Howie Klein wrote this:

Will Harry Reid's Sell Out Of The Middle Class Help Solidify An Open Rebellion Caucus?

tying the battle against the deal both to Reid and to a nascent (and playfully named) "Open Rebellion Caucus" among Warren-style progressives in the Senate:

Sounds more like caving in than compromising, no? ... It should be interesting to watch which Democrats stand with Elizabeth Warren, Bernie Sanders, Jeff Merkley, Sherrod Brown and Brian Schatz and which will stand with Reid and the Republicans.

Meanwhile, I'm hearing from other reporters that the Reid people are saying, in effect, "this isn't what it looks like" and noting that the deal was never final. We get indications of that here (emphasis mine):

Immigration politics and Democratic infighting came together to doom the $400 billion deal even before it had made it into print. The brinksmanship threatens to disrupt the lives of millions of taxpayers who rely on the mishmash of expired provisions the plan was trying to revive. ...

Interviews with the key players showed that the two tax-writing panels in the Senate and House had for weeks been making solid progress toward a final tax package that looked like it would include the breaks for low- and middle-income people sought by the president.

But the deal fell apart just as it seemed to be coming together.

The immigration executive order soured the GOP on the tax cuts for the working poor and middle class sought by Democrats. Republicans worried undocumented immigrants targeted by the order would begin claiming the credits in droves. They found a friend in Senate Majority Leader Harry Reid, who reluctantly agreed to drop his party’s demands to extend expiring parts of the earned income tax credit (EITC) and its companion, the child tax credit.

In other words, by this telling, also anonymously sourced, Reid, knowing a deal would have to be struck, tried for the best one he could get ... until Republican opposition to executive branch immigration reform came along to ruffle their feathers (see the bolded part above). Then he reluctantly surrendered on the Earned Income credit and the Child Tax credit.

Is This a Four-Handed Game?

Progressives are rightly upset with the shape of this deal, and the White House has promised a veto. All this raises a bunch of questions:

▪ Who were Volsky's sources?
▪ Who were the sources for the immigration-themed story?
▪ Was Reid doing his progressive best or caving?
▪ Why aren't the Reid people telling their side publicly?

I've been reluctant to write about his myself because there's so much going on behind the scenes. So your first piece of background information is — this could be a four-handed game. If so, these are the players:

1. Conservative Senate Democrats (i.e., most of them)
2. Progressive Senate Democrats (Warren & Sanders types)
3. All Senate Republicans
4. The White House

Let's leave Reid out of it for now and assume he stands for the best deal he can get (admitting that this is an assumption unverified by publicly available facts).

To illustrate what I mean by a "four-handed game," consider the difference in how you'd see this story if you knew Volsky's source was group 2 or group 4. If Volsky is hearing from group 2, Progressive Democrats, painting Reid as the perp helps progressives put Reid in a bind, forcing a maybe-better deal. If Volsky is hearing from group 4, the White House, painting Reid as the perp helps them distance themselves from, let's face it, a deal that the White House — filled as it is with corporate-friendly Democrats — always offers anyway at this time of year, but an even stinkier version of it.

I take Volsky as an honest reporter and really like his work. But as he himself makes plain, he's telling someone's story. Whose? We don't know; we'll have to see it played out.

So what are these "tax extenders"? And should they all expire?

"Tax Extender" Basics

This is the second part of your backgrounder — a primer on end-of-year tax extenders — nicely provided by the invaluable Dave Johnson, writing at OurFuture.org. We'll need this information in order to evaluate the deals that emerge (my emphasis below):

Every year Congress renews a package of “temporary” corporate tax breaks. The renewal process is called “tax extenders” because they extend the term of these temporary breaks. So now the Congress is working on this year’s extenders package, except this time it wants to just make many of them (the ones that mostly give handouts to giant corporations and campaign donors) permanent. The Washington Post calls this process “a periodic bonanza for lobbyists.”

A few of the special tax breaks in the extenders package are really good and serve an important purpose. For example, part of the package is tax credits that provide incentives to invest in renewable energy. But most others are just giveaways and handouts to the already-wealthy, like depreciation tax breaks for people who own racehorses. (Yes, really.) Even worse, some of these are loopholes that actually encourage corporations to shift U.S. profits offshore into tax havens. (Yes, really.)

The good breaks are used to grease the wheels to slip these special favors through – as in “if you want to get those wind tax credits you’re going to have to pass a tax break for Mitt Romney’s racehorses.”

So there you go — a few "good breaks" like renewable energy credits and tax credits for the poor that "grease the wheels" for mega-giveaways (a "bonanza") to corporations. (On the right, this is called the "honey" that catches the flies: us.)

Who's getting the better end of this deal? Obviously the rich; they get the better end of every deal. So who really wants their part more? Interesting question and one almost never asked. There's a way to find out though, with almost no downside to our side, and potentially a very large upside.

Suggestion to Progressives — Threaten to Let Them All Expire

Let's take what Dave Johnson says seriously. Most of these "extenders" are a rich-person's wet dream, and the ones we like are just "grease." So one way to negotiate, the weak way, is to protect as much of the grease as you can while handing the other side everything it wants. This assumes that the grease is so critical that even a little of it is more valuable than everything else you've surrendered. I call this the "weak way" because you end up with less and less grease, while handing a bigger and bigger "bonanza" to the other side in exchange.

(This, by the way, is true of real progressives — that the "grease" has value — but merely a cover story for non-progressive Democrats. For the latter, what matters is the "bonanza" that rich people get, and from which they take a cut. Keep that in mind when you consider statements from the White House, for example, which helps bankers far more than desperate mortgage-holders, or from less-than-progressive Senators.)

Again, one way to negotiate is from weakness, attempting to stave off total failure by surrendering more and more. But for uncompromised-by-money real progressives, there's another way to negotiate.

The fact is — the wet dream part is what this deal is all about, and that dream is critical to each of the other three groups in our four-handed game. Only progressives are opposed to the rich-people's gifts. So, progressives — Merkley, Warren, Reid (are you with us?) and friends — why not play a strong game instead of a weak one?

Instead of surrendering almost everything you care about to get the least bit of something, progressives should threaten everything the other side wants and frankly, call their money-loving bluff. The White House wants the rich to have these gifts in their stocking; all Senate Republicans agree; and so does every corporate-loving Democrat (like "sorry for playing hard" Michael Bennet). Make the other side fight for the money, and look like it.

Could progressives kill the whole deal if they don't get what they want? If you put me in charge of the Open Rebellion insurgency, I'd try. After all, the entire left press is on your side — consider that Volsky's source could already be Senate progressives. In addition, the issue is hugely visible. And even if you lose, you'll get the best deal possible, not the worst one available. Just say to the other three players:

"Progressives in the Senate stand for working people and those struggling with poverty. The deal on the table is unacceptable in every way. We would rather have no deal than the one on offer. If you want our vote, put the deal on the table in 2014 that we voted for in 2013. That way everyone wins. That or nothing from us."

The White House and less-progressive senators will play the kitten card and complain, "But what about the poor?" You then say:

"We care as much as you do. In fact, we care so much about the poor, we want the best deal possible, not the worst."

"Triangulate this," in other words. The White House has already come out against the size of the "bonanza." This offers them a chance to look even better by siding with you (they've already promised a veto, your own bottom line) — and at the same time, shows them a corner and offers a paint brush if they don't. I think this is worth a test.

Progressives who really care about people are always blackmailed — far too successfully in my opinion — with a "kitten held hostage" as I alluded to above. Here the kitten (and believe me, kitten lives are valuable) is a set of tax breaks for the poor and renewable energy credits, items of real value. But the only way to end blackmail is to walk away from it. "Do you love your kitten as much as we love ours? Let's find out. No kitten needs to suffer in this deal."

Another Opportunity for Progressives to Play Strong

I hear Mr. Reid is a pugilist who likes to play a strong smart hand. Mr. Reid, here's a chance to do that. Ms. Warren, we know what you can do. Mr. Merkley, care to help out? Play a strong hand and you could scare the shinola out of all the other players, the White House included. Yes, progressives care about the poor a whole lot. But count on it — your opponents care about the rich a whole lot more than that.

How much more? You could test it; they could be far more vulnerable to your blackmail than you think. Besides, this is one lame duck issue that won't wait until next year, when Democrats lose the majority. They're "end-of-year tax extenders." Good; another positional advantage, a stalemate if nothing happens. My suggestion — go for it. You can't do worse than the deal you were about to get.

Mes petits sous,

GP