Trump, Democrats Agree on Mammoth Spending Deal that Extends Some Tax Breaks

(Associated Press) The Democratic-controlled House voted Tuesday to pass a $1.4 trillion government spending package, handing President Donald Trump a victory on his U.S.-Mexico border fence while giving Democrats spending increases across a swath of domestic programs.

The hard-fought legislation also funds a record Pentagon budget and is serving as a must-pass legislative locomotive to tow an unusually large haul of unrelated provisions into law, including an expensive repeal of Obama-era taxes on high-cost health plans, help for retired coal miners, and an increase from 18 to 21 in the nationwide legal age to buy tobacco products.

The two-bill package, some 2,371 pages long after additional tax provisions were folded in on Tuesday morning, was unveiled Monday afternoon and adopted less than 24 hours later as lawmakers prepared to wrap up reams of unfinished work against a backdrop of Wednesday’s vote on impeaching Trump.

The House first passed a measure funding domestic programs on a 297-120 vote. But one-third of the Democrats defected on a 280-138 vote on the second bill, which funds the military and the Department of Homeland Security, mostly because it funds Trump’s border wall project.

The spending legislation would forestall a government shutdown this weekend and give Trump steady funding for his U.S.-Mexico border fence, a move that frustrated Hispanic Democrats and party liberals. The year-end package is anchored by a $1.4 trillion spending measure that caps a difficult, monthslong battle over spending priorities.

The mammoth measure made public Monday takes a split-the-differences approach that’s a product of divided power in Washington, offering lawmakers of all stripes plenty to vote for — and against. House Speaker Nancy Pelosi, D-Calif., was a driving force, along with administration pragmatists such as Treasury Secretary Steven Mnuchin, who negotiated the summertime budget deal that it implements.

The White House said Tuesday that Trump will sign the measure.

“The president is poised to sign it and to keep the government open,” said top White House adviser Kellyanne Conway.

The bill also offers business friendly provisions on export financing, flood insurance and immigrant workers.

The roster of add-ons grew over the weekend to include the permanent repeal of a tax on high-cost “Cadillac” health insurance benefits and a hard-won provision to finance health care and pension benefits for about 100,000 retired union coal miners threatened by the insolvency of their pension fund. A tax on medical devices and health insurance plans would also be repealed permanently.

The cost of the package grew as lawmakers added the repeal of three so-called “Obamacare” taxes and extended expiring tax breaks. Those policy changes will add $428 billion to the deficit over 10 years.

Late Monday, negotiators unveiled a scaled-back $39 billion package of additional business tax breaks, renewing tax breaks for craft brewers and distillers, among others. The so-called tax extenders are a creature of Washington, a heavily lobbied menu of arcane tax breaks that are typically tailored to narrow, often parochial interests like renewable energy, capital depreciation rules and racehorse ownership. But a bigger effort to trade refundable tax credits for the working poor for fixes to the 2017 GOP tax bill didn’t pan out.

The sweeping legislation, introduced as two packages for political and tactical purposes, is part of a major final burst of legislation that’s passing Congress this week despite bitter partisan divisions and Wednesday’s likely impeachment of Trump. Thursday promises a vote on a major rewrite of the North American Free Trade Agreement, while the Senate is about to send the president the annual defense policy bill for the 59th year in a row.

The increase in the tobacco purchasing age to 21 also applies to e-cigarettes and vaping devices and gained momentum after Senate Majority Leader Mitch McConnell signed on. But anti-smoking activists said the provision didn’t go far enough because it failed to ban flavored vaping products popular with teenagers.

Other add-ons include a variety of provisions sought by business and labor interests and their lobbyists in Washington.

For business, there’s a seven-year extension of the charter of the Export-Import Bank, which helps finance transactions benefiting U.S. exporters, as well as a renewal of the government’s terrorism risk insurance program. The financially troubled government flood insurance program would be extended through September, as would several visa programs for both skilled and seasonal workers.

Labor won repeal of the so-called Cadillac tax, a 40% tax on high-cost employer health plans, which was originally intended to curb rapidly growing health care spending. But it disproportionately affected high-end plans won under union contracts, and Democratic labor allies had previously succeeded in temporary repeals.

Democrats controlling the House won increased funding for early childhood education and a variety of other domestic programs. They also won higher Medicaid funding for the cash-poor government of Puerto Rico, which is struggling to recover from hurricane devastation and a resulting economic downturn.

While Republicans touted defense hikes and Democrats reeled off numerous increases for domestic programs, most of the provisions of the spending bill enjoy bipartisan support, including increases for medical research, combating the opioid epidemic, Head Start, and child care grants to states.

The outcome in the latest chapter in the long-standing battle over Trump’s border wall awards Trump with $1.4 billion for new barriers — equal to last year’s appropriation — while preserving Trump’s ability to use his budget powers to tap other accounts for several times that amount. That’s a blow for liberal opponents of the wall but an acceptable trade-off for pragmatic-minded Democrats who wanted to gain $27 billion in increases for domestic programs and avert the threat of simply funding the government on autopilot.

Some Popular Tax Breaks Renewed

A raft of expired and expiring tax breaks, including deductions for mortgage insurance premiums, college tuition and large medical bills, would be renewed under a massive government-wide funding bill approved by the Democratic-controlled House.

The action comes a few days before the second anniversary of passage of President Donald Trump’s massive 2017 tax law, his signature legislative achievement. The package of individual and corporate tax cuts that the Republicans muscled through Congress was the most extensive rewrite of the U.S. tax code in three decades, adding an estimated $1.5 trillion to the ballooning deficit.

It provided steep tax cuts for corporations and the wealthiest Americans, and more modest reductions for middle- and low-income individuals and families. While the law slashed the corporate tax rate permanently from 35% to 21%, its tax cuts for individuals expire in 2026.

The agreement on extending tax breaks for several years, reached by House and Senate leaders in the wee hours Tuesday, was far more narrow. In addition to the deduction for mortgage insurance, college tuition and big medical bills, it includes extensions of several measures to boost renewable energy sources, such as a wind energy tax credit and a biodiesel credit eagerly sought by soybean growers.

Also extended are tax breaks for brewers and distillers, a credit for maintenance on short-line railroads and tax relief for victims of natural disasters.

“We are extending tax relief needed to help rebuild in areas where natural disasters have devastated homes and businesses,” Sen. Chuck Grassley, R-Iowa, chairman of the Senate Finance Committee, said in a statement Tuesday. “This will help people in Iowa who saw historic, damaging floods in 2019 as well as Californians and others who’ve endured some of the biggest wildfires in recent history.”

But deficit hawks like Maya MacGuineas, president of the Committee for a Responsible Federal Budget, denounced the move as reviving “zombie tax extenders.”

“Bringing these costly temporary tax provisions back from the dead is not just bad fiscal policy, it is bad tax and economic policy as well,” MacGuineas said in a statement.

Also tucked into the $1.4 trillion government spending legislation is the repeal of a trio of taxes that came in with President Barack Obama’s signature health care law. They are a tax on makers of medical devices such as surgical instruments and X-ray equipment, one on high-cost health care plans offered by employers, and another on health insurance companies, based on a company’s market share.

Powerful industry lobbies have agitated against the health care levies. They pushed for it, unsuccessfully, in the 2017 tax legislation.

The narrow scope of the new tax agreement means that a broad bipartisan overhaul of tax legislation will have to wait until next year.

At the same time, prospects are clouded for a House bill that would remove for two years the $10,000 cap on state and local tax deductions that was imposed to help pay for the 2017 tax law. The deductions are widely popular, especially in high-tax, heavily Democratic states like New York, New Jersey and California.

Chances have dimmed for a House vote this week on the legislation to suspend the cap. Some Democratic lawmakers from low-tax states appeared reluctant to support the bill, according to congressional aides.