U.S. infrastructure deal teeters after Republicans reject IRS funds

© Reuters. FILE PHOTO: The sun rises on the U.S. Capitol dome before Joe Biden's presidential inauguration in Washington, U.S., January 20, 2021. REUTERS/Jonathan Ernst/File Photo

By Jarrett Renshaw and David Morgan

WASHINGTON (Reuters) - The White House and U.S. congressional negotiators are scrambling to salvage a $1.2 trillion bipartisan infrastructure deal after Republicans balked at funding to enforce existing tax laws - a key way to pay for the plan - leaving both sides searching for a way forward.

Senators and Biden administration officials still hope to hammer out the deal, including a plan to finance it, for a Senate vote on Wednesday, but both parties were growing increasingly skeptical Tuesday.

"(It’s) hard to think there will be a bill by the time we vote tomorrow," Republican Senator Bill Cassidy, one of the bipartisan infrastructure negotiators, told Reuters. "There's still more issues," he said, including how the Congressional Budget Office scores the bill's impact on U.S. federal finances.

The next step, Democrats say, could be jettisoning the bipartisan agreement entirely, which needs 10 Republican votes to pass the Senate, and putting all of U.S. President Joe Biden's spending priorities into a "budget reconciliation bill" that can pass along party lines.

"Patience is wearing thin for Democrats and I am fully expecting the party’s leadership to pivot towards the go-alone approach shortly. Then, the blame game will begin," said one Democratic aide involved in the negotiations.

Last month, Biden and a bipartisan group of senators agreed on a $1.2 trillion infrastructure package with roughly $600 million in new spending financed in part by increased enforcement of tax laws.

Both sides agreed to add $40 billion to the Internal Revenue Service budget, a move that Biden said would focus on enforcing tax laws for large corporations and people who earn more than $400,000.

The funding would yield about $100 billion in tax revenue, negotiators said, or a sixth of the package's new spending cost.

Republicans, under pressure from anti-tax groups who claimed it would empower auditors to harass business owners and political opposition, rejected that plan over the weekend.

Ohio Senator Rob Portman said Sunday that Republicans believed Biden had agreed the full extent of IRS enforcement funding would be in the bipartisan bill; instead Democrats are planning to add billions more to IRS enforcement to the later reconciliation bill.

The IRS budget fell to about $11.95 billion in 2020 from an inflation-adjusted $14.6 billion in 2010, largely as a result of Republican-driven budget cuts that Democrats want to reverse.

On Monday Biden took a dig at Republicans who have backed away from the deal, saying “we shook hands on it."

Asked if it will be time to forge ahead with reconciliation if Wednesday’s Senate vote fails, Representative Alexandria Ocasio-Cortez, a leading Democratic progressive, told reporters: "Yes … they've been killing time for months and at this point, I believe that it’s starting to get to a point where this bipartisan effort is seeming to serve less on investing in our infrastructure and serving more the end of just delaying action on infrastructure."