Prospects for a major tax deal growing

Congressional negotiators who are working on the biggest tax deal in more than a decade are saying that the prospects are getting better for an agreement that could cut $800 billion in taxes over the next few years.

But the White House is balking over popular measures like repealing Obamacare's medical device tax and its so-called "Cadillac tax" on expensive health insurance plans.  They also want money for the "risk corridor" slush fund that pays out cash to insurance companies that lose money on the Obamacare exchanges.

The Hill:

The core of a bigger deal would indefinitely extend the research and development tax credit and the Section 179 deduction for small-business expensing, two Republican priorities that have support from pro-business Democrats.

It would also make open-ended expansions of the child tax credit, the earned income tax credit and the American opportunity tax credit, central pieces of President Obama’s 2009 stimulus package.

Lawmakers are also debating provisions that would lift the ban on exporting U.S. oil and index the child tax credit to inflation.

 Republicans and Democrats are close to agreeing on delaying two major taxes, the “Cadillac tax” on high-benefit plans and the medical device tax.

But those proposals have run into opposition from the White House, which wants language fixing ObamaCare’s so-called risk corridors — a program intended to help insurance companies that take a financial hit by participating in government-run health exchanges.

That program is nearly out of money because of a policy rider sponsored by Sen. Marco Rubio (R-Fla.) on a year-end spending bill in 2014 that bars the Department of Health and Human Services from tapping into other accounts to fund it.

Rubio’s role has injected presidential politics into the debate, making it all but impossible for GOP leaders to agree to the White House’s demands.  

The talks appeared to hit a wall Monday when Republicans ruled out fixing the risk corridors, which they panned as a “bailout for insurance companies.”

“This is not on the table. Risk corridors is fully off the table,” said a Senate Republican leadership aide.

Despite the disagreement, Republicans are feeling optimistic they can get the healthcare pieces worked out.

Repealing the Cadillac tax, which hits the health plans of union members especially hard, is a priority of Reid’s and many Democrats.

There is also bipartisan support for repealing the medical device tax, though Democrats have insisted its impact on the budget be offset by other savings or tax increases.

There is something for both sides in the deal, but wrestling with language on the Obamacare taxes could still blow up any agreement on other, less controversial provisions.  Notice that Democrats are not insisting on offsets for a repeal of the Cadillac tax for their union friends, but want corresponding tax increases for a repeal of the medical device tax. 

But many Democrats are not eager to inject any cash into the risk corridor slush fund, despite the insistence of the White House.  It's a ready-made campaign issue for Republicans, who have portrayed the fund as a "bailout" for big insurance companies.

It's not likely that a deal can be worked out before the end of the week, which means negotiations could stretch into the next Congress.  With the budget impasse showing no sign of lessening, it appears that the new Congress will have its hands full when it convenes early next month.

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