Lawmakers Rue Demise of Broad Year-End Tax Deal

A relatively narrow tax package sets up Congress to revisit several contentious issues in 2020, which has lawmakers lamenting the failure of a push for a more comprehensive deal.

The bipartisan agreement, released early Dec. 17, would continue over 30 expired or expiring tax provisions, repeal nearly $400 billion in health care taxes, and fix some inadvertent impacts of the 2017 tax law. The package, attached to a government funding bill, passed the House Dec. 17 and is expected to have no trouble clearing the Senate.

But negotiators failed to reach agreement on some of the biggest ticket items on each party’s wishlist, including major tax law corrections sought by Republicans and expanded refundable tax credits and renewable energy incentives sought by House Democrats. The deal also only extended many of the temporary tax breaks, known as extenders, through the end of 2020.

“‘Business as usual’ won this round. Fight isn’t over—yearly temp tax circus needs to end. Focus on 2020,” House Ways and Means ranking member Kevin Brady (R-Texas) said in a Dec. 17 tweet that captured the sentiment of many of his colleagues. “When I die, sprinkle my ashes over the extenders—so I live thru eternity.”

Brady, who has pushed to address whether the temporary breaks should be made permanent or ended, wasn’t the only lawmaker vowing to fight on tax issues in a presidential election year. Many Democratic lawmakers also pledged to keep pushing for their preferred policies, including an expansion of the earned income and child tax credits.

Broader Deal Failed

Democratic lawmakers blamed the administration for a broader deal between lawmakers falling through over the weekend, which could sour chances for a major tax policy compromise next year.

“We thought we were in pretty good shape with them on Saturday morning,” said House Ways and Means Committee Chairman Richard Neal (D-Mass.). “I don’t know what happened with them Saturday afternoon with the administration, but in conversations I had with Chuck Schumer and Speaker Pelosi on Saturday, we were certainly making headway.”

Treasury didn’t return multiple requests for comment.

Multiple tax lobbyists and congressional staffers tracking negotiations confirmed that the administration, primarily represented by Treasury Secretary Steven Mnuchin, re-opened talks on Dec. 15 after Congress had agreed to a more robust preliminary deal.

The status of almost all non-health-related tax policy riders remained fluid until a Dec. 16, when Mnuchin met with Brady, Senate Minority Leader Chuck Schumer (D-N.Y.), House Minority Leader Kevin McCarthy (R-Calif.), Sen. Maria Cantwell (D-Wash.), and Senate Finance Committee staff. That meeting continued late into the night, and the agreement was released shortly after its conclusion.

Senate Finance ranking member Ron Wyden (D-Ore.) issued a Dec. 17 statement touting the agreement to extend popular tax breaks for alcohol producers and short-line railroads, but criticized the administration for failing to agree to a broader deal.

“A better agreement to make a number of policies permanent and extended others was near the finish line, but the administration opposed the package,” Wyden said.

Neal Not Giving Up

Republicans balked at the budgetary cost of Democratic proposals, while Democrats insisted that technical corrections aimed at businesses should be paired with broader tax breaks for low-income workers and families.

Republicans particularly sought to fix a drafting error in the law commonly called the “retail glitch,” which prevents businesses from immediately deducting renovation expenses.

Neal said Democratic lawmakers haven’t given up on seeking more generous refundable tax credits in exchange for tax law fixes, setting the stage for more negotiations next year.

“We still think before you do any technical corrections bills, refundables will be the price,” Neal said Dec. 17.

The funding and tax agreement does include some other, less politically-charged tax law corrections, including inadvertent tax hikes on parking spaces owned by religious nonprofits and survivor benefits paid to the families of deceased military service members. Neal said addressing the church parking issue had broad support among the Democratic caucus.

Ultimately the largest victory for all sides may be the permanent repeal of three taxes established in the Affordable Care Act. Those repeal talks took place on a negotiation track separate from tax extenders, and had added urgency due because two of them were due to take effect in 2020.

“The deal that was struck was always going to be the only agreement that could be reached,” said Rohit Kumar, a former top aide to Senate Majority Leader Mitch McConnell (R-Ky.) who now works for PwC in Washington. “That it took until the last minute to reach is just a reflection of the divisiveness of the times.”