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Democrats, Republicans race to strike year-end tax and spending deal

Dec. 8, 2022 Updated Thu., Dec. 8, 2022 at 11:35 a.m.

Senate Appropriations Committee Chairman Patrick J. Leahy (D-Vt.), left, talks with Sen. Richard C. Shelby (R-Ala.), the vice chairman.    (Bill O'Leary/The Washington Post)
Senate Appropriations Committee Chairman Patrick J. Leahy (D-Vt.), left, talks with Sen. Richard C. Shelby (R-Ala.), the vice chairman.   (Bill O'Leary/The Washington Post)
By Tony Romm Washington Post

WASHINGTON - Democrats want to expand a tax credit that aids low-income families. Republicans hope to preserve a set of tax breaks that benefits businesses. And both parties hope to prevent a federal government shutdown.

Put the pieces together and Congress should have the ingredients for an easy, year-end legislative deal. But in a Capitol where nothing has been simple recently - and partisan tensions still run high - there’s a growing fear that even the politically achievable is going to be anything but.

The clock is ticking on lawmakers, who find themselves on Thursday in a familiar race to address a slew of fast-approaching fiscal deadlines. Their chief task is to adopt a new spending measure before Dec. 16, otherwise Washington is set to run out of money, bringing federal agencies, programs and services to an undesirable halt.

The debate so far has proved difficult, and it remains unclear whether the two parties can reach a wide-ranging agreement in a matter of weeks. Without that package, known as an omnibus, Congress also may have no other legislative pathway this year to pursue its remaining policy priorities - including Democrats’ and Republicans’ preferred changes to the tax code.

In many ways, the tough slog could foreshadow more brutal fights and late nights on the horizon, with two years of Democratic control of Congress set to come to an end this January, once Republicans take over the House. If lawmakers cannot come to a compromise even when they share some common purpose, are they going to be able to work together in a divided Washington at all?

“You either want to have an omnibus and move forward with everything in it, or you don’t. This is not a game. This is a reality,” said Rep. Rosa L. DeLauro (D-Conn.), the chairwoman of the House Appropriations Committee. “This is a reality that has serious consequences for the American people.”

For the moment, senior Democrats and Republicans labored Wednesday to fund the government for the remainder of the fiscal year. The discussions have been stalled for weeks, according to Democrats, who charge that GOP lawmakers have refused to talk specifics, previously citing the now-resolved Georgia Senate runoff election.

Behind the scenes, top Senate appropriators - Sens. Patrick J. Leahy (D-Vt.) and Richard C. Shelby (R-Ala.) - have been especially active, hoping to clinch one final spending deal before they both retire at the end of the current session of Congress. Democrats said they submitted their latest spending counteroffer to the GOP on Wednesday afternoon. But the two sides have remained at odds over familiar fault lines, with Republicans seeking more money for defense and less for other domestic programs than Democrats and the White House prefer.

“We’re not there yet, but we’re not that far away, either,” Shelby told reporters.

President Biden, however, has encouraged negotiators to “keep working at it,” as Brian Deese, the president’s top economic adviser, put it at a White House news briefing on Tuesday. Biden had lunch with Leahy and Shelby at the White House a day earlier, after meeting with congressional leadership last week.

“Everybody agrees that having a stable, year-long funding bill is better for our country, it’s better for our economy, it’s better for our national security,” Deese said.

Congress last funded the government - for the fiscal year that began in October - through a temporary measure that lasts through Dec. 16. To avert a shutdown after that, lawmakers can again adopt what’s known as a continuing resolution, which generally preserves federal spending at current levels for a set period.

But Democrats and Republicans both have said they prefer another option: a fuller appropriations package that would finance the government at new levels through Sept. 30, 2023. That so-called omnibus could deliver urgently needed funding, including new sums to the Pentagon, while putting forward the money that carries out Biden’s recently adopted economic agenda.

“I’m hopeful we pass an omnibus,” said House Majority Leader Steny H. Hoyer (D-Md.) during a briefing with reporters this week, describing a short-term stopgap as a “clumsy document.”

Increasingly, lawmakers believe they need at least an extra week to try to reach a deal, meaning they may have to vote to push back the deadline, perhaps to Dec. 23. In sorting out their many disagreements, they also face pivotal choices about approving more aid to Ukraine and new support for the U.S. government’s fight against the coronavirus - a $47 billion request that the White House has sought but some Republicans oppose. With it, the Biden administration recently has asked for an additional $37 billion in response to Hurricane Ian and other major natural disasters.

Democrats plan to include that aid as part of their own omnibus proposal, which they intend to make public on Monday with or without GOP support, according to a party aide, who spoke on the condition of anonymity to describe their plans. Some GOP lawmakers, meanwhile, have called on Congress to postpone the debate into the new year, when Republicans will assume control of the House. Senate Minority Leader Mitch McConnell (R-Ky.) raised that possibility on Tuesday, in a move that seemed designed to put pressure on negotiators who have been stuck for weeks.

“Time is ticking,” McConnell said at his news conference on Tuesday.

A day later, other Republicans joined the growing chorus. Appearing at a news conference, Sen. Rick Scott (R-Fla.) urged lawmakers to adopt a short-term funding measure until “some time into the next Congress, and let the next Congress do their job.”

House Minority Leader Kevin McCarthy (R-Calif.) even went so far as to tell McConnell and other Republicans to cease negotiating with Democrats. The GOP leader, who is seeking to become House speaker next year, told Fox News, “Why would you want to work on anything if we have the gavel inside Congress?”

The same pressures - a fast-ticking clock, and growing political discord - have enveloped bipartisan discussions about a year-end tax package. The fiscal stakes are great, in the words of Hoyer, who predicted this week the overall price tag could represent a “big number.”

If the two parties accomplish even most of what they seek, the Urban-Brookings Tax Policy Center estimates it could reduce federal revenue by $694 billion over the next decade, adding to the deficit as interest rates are rising.

In those talks, Democrats have sought changes to the child tax credit, which provides yearly tax deductions, and often refunds, to low-income families with children. Party lawmakers have been chasing an expansion since last year, when a much larger, pandemic-era program expired, ending what were monthly advance payments to parents in need.

“We know this program works. We know it works for the economy,” Sen. Cory Booker (D-N.J.) said at a news conference on Wednesday outside the Capitol, flanked by activists. “I don’t know why we’re having to fight so hard when there are no losers here.”

Privately, Democratic aides admit that the political dynamic in the narrowly divided House and Senate has forced them to pursue alternatives, according to three people familiar with the matter who spoke on the condition of anonymity to describe the ongoing talks. A return to monthly payments is unlikely, the people said, but Democrats at least hoped to make other changes to aid parents. That includes overhauling the credit so that it is fully refundable, which would allow families to claim the full credit on their taxes even if they don’t owe anything to the federal government.

Speaking to reporters early Wednesday, Senate Majority Leader Charles E. Schumer (D-N.Y.) described it as “something many of us are passionate about, and we would very much like to get it done.”

Republicans, however, have expressed concern that any expansion of the child tax credit could cost too much money. Some also have demanded in discussions that any reform should be coupled with work requirements and other restrictions that more narrowly target the aid.

“The work component is a big priority on the Republican side,” said Rep. Adrian Smith (Neb.), a top GOP lawmaker on the House Ways and Means Committee. Referring to Democrats, he said, “They’ve got a long way to go, to skinny that down on the dollars.”

Democrats, however, have made clear in recent days that an expansion is necessary to win their needed support on a chief GOP concern: tax breaks for businesses. For Republicans, policies enacted under the 2017 overhaul signed into law by President Donald Trump are the focus. Starting this year, for example, companies are required to spread, or amortize, their research and development deductions over five years. Republicans also have eyed tax breaks targeting interest expenses and equipment purchases.

Major businesses, and top Washington groups including the U.S. Chamber of Commerce, have recently called on Congress to act. Citing the research and development credit, the powerful lobbying group said that a failure to renew it would “increase the cost of doing business for American companies at a time when they are suffering persistent, record-high inflation.”

Some Democrats generally support tax breaks that boost research, a political reality that prompted Rep. Kevin Brady (Tex.), the outgoing top Republican on the House Ways and Means Committee, to stress Wednesday that lawmakers should “focus on the bipartisan provisions.”

Otherwise, Brady did not appear bullish about the prospects of a deal. “Unfortunately, I don’t see the progress I think we all need to see on either the tax, trade or health-care extenders,” he said, later adding, “The clock is ticking.”

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