Democrats Out of Power Seek Small Wins in Impending Tax Fight

Democrats on the outside looking in during next year’s tax negotiations can still exert some sway in the process, even with total GOP control of Washington.

The tax writing Senate Finance Committee could add up to four new Democratic members—the most in recent memory. Those neophytes to the panel will be tested against a GOP roster with little churn and big plans to extend expiring parts of the 2017 Republican law’s tax cuts.

Still, Democrats weren’t in the driver’s seat back in 2017 either, and managed to notch some wins.

Republicans intend to use the budget reconciliation process to advance a tax bill with no need for Democrat input. Incoming Finance Chair Mike Crapo (R-Idaho) said he’d like to build bipartisan consensus, but wasn’t overly enthusiastic the two parties could find common ground.

“I don’t see where we can find the necessary middle ground right now,” Crapo said. “But I’m willing to try to find it.”

Twelve Republicans broke with their party and voted against the 2017 legislation during a final House vote, and next year the party will have just a few seat advantage in both the House and Senate.

Thin margins leave the party vulnerable to small groups of lawmakers willing to halt passage over singular priorities. Republicans protesting the state and local tax deduction cap, for example, are one such group.

That dynamic could force Republicans to seek moderate Democrats to make up the difference, said Anna Taylor, deputy managing principal of Deloitte LLP’s Tax Policy Group in Washington.

“In that environment, it’s possible at least some members of the minority may have an opportunity to participate even in a reconciliation process,” said Taylor, who spent two decades on the Hill and last served as tax and economic adviser to outgoing Senate Majority Leader Chuck Schumer (D-N.Y.).

Retirements and lost races will thin out the Democratic roster on Finance next year.

Sens. Ben Cardin (D-Md.), Debbie Stabenow (D-Mich.), and Tom Carper (D-Del.), are retiring, and Sens. Sherrod Brown (D-Ohio) and Bob Casey (D-Pa.) lost re-election bids. And Bob Menendez (D-N.J.) resigned after corruption convictions.

Credits Added Back

House Ways and Means Committee ranking member Richard Neal (D-Mass.) pointed to new markets, historic and other tax credits that were initially omitted from the 2017 legislation but added back after his pressure campaign.

Neal in a recent interview recalled at a 2017 hearing questioning Joint Committee on Taxation Chief of Staff Thomas Barthold about whether the credits had been taken out.

“Sure as hell, like two days later, they were back in,” Neal said.

Democrats also managed to recruit a few GOP senators to vote for an amendment during floor consideration that stripped a provision from the draft they said effectively singled out conservative Hillsdale College for an excise tax exemption.

Provisions like the opportunity zone program aimed at encouraging investment in distressed communities originated as bipartisan proposals, said Andrew Lautz, an associate director for the Bipartisan Policy Center. And concepts from some previous bipartisan lawmaker working groups, such as one on international tax led by Schumer and then-Sen. Rob Portman (R-Ohio), ultimately were incorporated.

Common ground might also be found in provisions from the $78 billion tax agreement forged by Senate Finance Chair Ron Wyden (D-Ore.) and House Ways and Means Chair Jason Smith (R-Mo.). That legislation got significant bipartisan House support, and Lautz saw opportunities in areas like housing and the child tax credit—popular topics on this year’s campaign trail.

“I expect a lot of partisan rhetoric over the tax debate next year,” Lautz said. “But sometimes the policies that one or the other party are talking about are actually rooted in bipartisan principles.”

Committee Shuffle

The current Finance Committee ratio—14 in the majority and 13 in the minority—may change to reflect the slightly larger three-member GOP advantage. But potentially four seats on the Democratic side of the dais could open up.

Progressive Sen. Bernie Sanders (I-Vt.) staked his claim in a recent statement saying he expects his seniority would ensure him a spot. Democratic Sens. Cory Booker of New Jersey, Alex Padilla of California, Tina Smith of Minnesota, and Raphael Warnock of Georgia have all told Bloomberg Tax they had interest in joining the roster.

Even in Democratic unified control during part of President Joe Biden’s tenure, lawmakers enacted major bipartisan laws on US infrastructure and technology competitiveness.

“I’ve seen the Senate Finance Committee accomplish a lot in a bipartisan way,” Cardin said.

To be sure, Democrats won’t get most of what they want.

During debate over the 2017 law, more than a dozen Senate Democrats led by Sen. Joe Manchin (I-W.Va.) vented their frustration during a press conference. Despite meeting with GOP colleagues and the White House, and backing policies like a boost of the standard deduction, they were being frozen out.

Senators argued a bipartisan consensus could produce a longer-lasting tax agreement and avoid a future tax cliff.

“Aren’t we much better off trying to do something that reflects my state of Indiana and everybody’s state, rather than just something that they’re trying to jam through a small hole?” said then-Sen. Joe Donnelly (D-Ind.)