Less than two weeks after Republicans won control of Congress, acrimony over immigration is dampening hopes for cooperation on more ambitious initiatives, with President Obama and GOP lawmakers bracing not for compromise but for combat.
White House officials insist that Obama remains interested in finding common ground when Republicans consolidate their hold on the Capitol in January, with an overhaul of federal tax laws at the top of everyone’s agenda.
Obama has been promising to cut the nation’s corporate tax rate, the highest in the world, for nearly three years. And with a rash of companies moving abroad to escape U.S. taxes, many Republicans see action on that issue as critical to both the economy and their political fortunes in 2016, when more than 20 GOP senators will be up for reelection.
However, lawmakers say that instead of engaging with Republicans, Obama has provoked them on a range of issues, most explosively his threat to unilaterally halt deportations of millions of undocumented immigrants. And instead of starting work on tax legislation that would be politically and substantively challenging under the best circumstances, Republicans are threatening another bitter partisan showdown that risks shutting down the government.
“I privately talk to senators, and they’re just baffled,” said Sen. Jeff Sessions (R-Ala.), who is in line to chair the Senate Budget Committee. “All the things that people were seriously upset with the administration about, it seems the president is doubling down on them.”
At a news conference in Burma last week, Obama defended his pursuit of his priorities on immigration and climate change, advising Republicans not to take things so personally.
“The fact that I disagree or Republicans disagree with me on a certain set of issues doesn’t preclude us working on areas where we do agree,” he said. “. . . One thing that’s going to be important for us to have a successful partnership the next couple of years is not making disagreements on a single issue suddenly a deal-breaker on every issue.”
Still, even some Republicans who have been inclined to work with the White House are skeptical of the president’s approach.
“We need to start seeing White House proposals to accept or reject, rather than just listening to rhetoric about executive orders,” said Sen. Johnny Isakson (Ga.), who last year helped persuade his colleagues to attend a series of informal meetings where Obama tried unsuccessfully to revive a big tax and spending deal.
Asked about the prospects for tax reform, Isakson said, “I’m not a gambler, but I wouldn’t bet on it.”
In addition to being a legacy-making achievement in its own right, tax reform could help grease the skids for must-pass deals that are already looming large on the political calendar. The Highway Trust Fund, for example, will run out of cash in the spring, and the federal debt limit will rear its head again sometime next summer.
After eight years in the minority, Senate Republicans suddenly find themselves with primary responsibility for solving both problems, which are likely to require uncomfortable votes to raise revenue and to authorize an increase in the nearly $18 trillion federal debt. A broad package to cut the corporate tax rate could help ease that pain.
Meanwhile, the business community is clamoring for relief from a tax system that is alone in the developed world in taxing corporate profits earned overseas. Add the fact that the United States also imposes the highest tax rate among industrialized nations — 35 percent — and analysts see a brewing economic disaster, as some U.S. firms avoid major investments at home while others flee to Ireland and other low-tax countries.
“The American dream is disappearing before our very eyes — not because people don’t work hard. It’s because of the way we’ve structured the system,” said Michael Porter, director of the Institute for Strategy and Competitiveness at Harvard Business School. “The jobs that are a path to the American dream are few and far between. And that’s because of high corporate taxes.”
Earlier this year, Obama raised the alarm about an impending flood of corporate relocations, known as “inversions,” and blasted “corporate deserters” for their lack of patriotism. This fall, Treasury Secretary Jack Lew called for corporate tax reform to improve the nation’s business environment and announced new regulations aimed at making inversions less profitable.
The day after the election, incoming Senate majority leader Mitch McConnell (R-Ky.) suggested that trade policy and corporate tax reform were “two very significant areas of potential agreement” between the parties, signaling a new willingness by the GOP to discuss corporate reform separately from an overhaul of the individual tax code, which the White House views as irresolvably contentious.
Rep. Chris Van Hollen (Md.), the senior Democrat on the House Budget Committee, said that the White House is “genuinely interested in having a dialogue on corporate tax reform.” If Republicans are now willing to focus on the corporate code, Van Hollen said, “I think that’s welcomed by the White House.”
Still, senior tax aides, lobbyists and analysts in both parties said they have seen few signs that the administration is preparing to pounce on the opportunity, and most observers see little chance that a far-reaching tax package will be approved.
“We have an amazing degree of consensus about what to do. But [the White House] has always been the biggest problem,” said Sen. Rob Portman (R-Ohio). “I’ve now had serious conversations with four Democrats, and I’m about to talk to a fifth. They look downtown for some support, and they don’t see it.”
Absent presidential buy-in, Republicans face the unappealing prospect of pursuing tax reform on their own, and they are divided over how to proceed.
In the House, senior GOP aides said, Speaker John A. Boehner (Ohio) and Rep. Paul Ryan (Wis.), who is expected to be elected this week to chair the tax-writing Ways and Means Committee, are reluctant to ask lawmakers to take difficult votes to repeal popular tax breaks when there’s no assurance that the resulting bill would fulfill important Republican goals or win Obama’s signature.
In the Senate, the incoming chairman of the Finance Committee, Orrin G. Hatch (R-Utah), is a veteran dealmaker inclined to make progress where he can. But drafting legislation that has some hope of getting Obama’s signature would be complicated by the president’s insistence that tax reform raise fresh cash for infrastructure, an idea many conservatives oppose.
“We’re going to have to face that music,” Hatch said. “It’s not an easy question.”
Portman is his party’s most enthusiastic advocate for forging ahead regardless. Back home in Ohio, he said, two companies recently abandoned Cleveland for Ireland and Britain, and inversions are a hot topic among the voters he will face in 2016.
“The economic studies of the kind of tax reform we’re talking about all indicate the benefits primarily go to higher wages and higher benefits. What better way for us to deal with the middle-class squeeze?” Portman said.
“Maybe I’m hopelessly naive, but it’s so obvious that we should do it.”