Bloomberg News

Senate Democrats Face Problem in Finding Votes for Tax Hike

July 01, 2011

(Updates with Pryor comments starting in 17th paragraph.)

July 1 (Bloomberg) -- Senate Majority Leader Harry Reid of Nevada will have trouble lining up votes among his fellow Democrats for tax increases as he pressures Republicans to accept a debt-ceiling boost.

Senate Democrats facing re-election battles next year in Republican-leaning states, including Ben Nelson of Nebraska, are torn over whether to support a debt limit bill that includes revenue increases. Others, like Mary Landrieu of Louisiana, have concerns about tax proposals that would affect home-state industries. She said yesterday that she will have problems if tax breaks for oil and gas companies are curtailed.

Republicans are opposed to raising revenue as part of legislation that would also cut spending and increase the $14.3 trillion debt ceiling. The competing interests among Democrats will make it that much tougher for Reid to round up 60 votes that likely will be needed to advance a deficit reduction package in the Senate.

“The math is very tough,” said Brian Gardner, senior vice president of Washington research for Keefe, Bruyette & Woods Inc. “Any moderate Democrat who is up in 2012, especially in a red-leaning state, it’s a tough political vote for them.”

The Obama administration is calling on Congress to cap deductions that can be claimed by high-income taxpayers, eliminate tax benefits for the oil and gas sector and for corporate jets, and repeal the method that businesses use to account for their inventories.

Debt Ceiling Legislation

Republicans are pressing for no tax increases and sharp spending cuts in legislation to raise the federal debt ceiling. It must be passed before Aug. 2, when the Treasury Department projects that the U.S. will no longer be able to meet its debt obligations.

Senator Richard Durbin of Illinois, the chamber’s second- ranking Democrat, said yesterday that legislation increasing the debt limit could win support in the House and the Senate if it included revenue. He said the package wouldn’t be of a sufficient size if tax increases were not included.

“If revenues are not in, it will necessarily be a much smaller package,” he said yesterday. “Is that adequate to win support in both chambers, No. 1? And No. 2, is it adequate to allay the fears of many people observing our economy that we are not seriously tackling the deficit?”

Nelson said he is worried about the emphasis some of his fellow Democrats are placing on tax increases.

‘All the Cutting’

“My concerns are that we need to do all the cutting we can do,” he said. “If we don’t do all the cutting before there’s talk about raising taxes, the cutting stops and we have to do a monumental amount of cutting and we don’t need distractions.”

Nelson said he wouldn’t rule out supporting a debt limit measure that includes revenue increases and said he would be most comfortable with provisions focused on specific industries.

Other Senate Democrats facing competitive re-election prospects in 2012 are Jon Tester of Montana, Debbie Stabenow of Michigan and Claire McCaskill of Missouri.

Landrieu said Obama focused too much on the oil and gas industry’s tax benefits during his June 29 news conference. She was one of only three Democrats to oppose a measure in May that would have repealed $21 billion in tax breaks for five U.S. multinational oil companies.

Targeting Industries

“For the president to say we’re going to raise revenues to retire the debt but the only industry we’re going to look to is oil and gas, I think that’s wrong,” she said.

Landrieu said revenue increases “almost certainly” should be part of a deficit reduction agreement and indicated a desire for a more comprehensive approach to determining which tax benefits should stay or go.

“It’s not just revenues from one industry, or two industries,” she said. “It’s revenues generated by reforming the tax code, removing loopholes that shouldn’t be in the tax code for a broad range of industries.”

Senator Mark Pryor, an Arkansas Democrat, said his support for the revenue components that top Democrats have been discussing would hinge on details of the deficit-reduction proposal that haven’t been hammered out.

“Trying to sort out what all that means and where we end up on specifics is hard to know because all that hasn’t been negotiated yet,” he said.

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, has said the chamber could pass a deficit reduction package through a procedure known as budget reconciliation. That would require passage by a simple majority, or 51 votes, instead of 60. It also would require a legislative vehicle and the cooperation of House Republican leaders, which is unlikely.

Looking to Republicans

Durbin expressed confidence yesterday that at least a few Senate Republicans would support a debt-limit increase measure that includes fresh revenue. Republicans Tom Coburn of Oklahoma, Saxby Chambliss of Georgia and Mike Crapo of Idaho have said that they would consider revenue increases as part of deficit reduction.

Democrats control 53 seats in the Senate. They would need seven Republican votes to overcome a filibuster if every member of the Democratic caucus supported the legislation.

Other Senate Republicans who often side with Democrats, including Olympia Snowe of Maine and Scott Brown of Massachusetts, might not be willing to do so this time, KBW’s Gardner said. Both Snowe and Brown are up for re-election next year and could have primary challenges from candidates backed by the Tea Party.

“When Democrats look to peel off a couple of Republicans, the Republicans who are the usual suspects are not in a position to vote for a tax increase right now,” Gardner said.

--Editors: Jodi Schneider, Laurie Asseo.

To contact the reporters on this story: Steven Sloan in Washington at ssloan7@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net


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