GOP may scale back tax pro­posal

Law­mak­ers and lob­by­ists are push­ing for changes to key as­pects of Pres­i­dent Trump’s plan.

Los Angeles Times - - FRONT PAGE - By Lisa Mas­caro and Jim Puz­zanghera

WASHINGTON — Pres­i­dent Trump promised the largest tax cut in his­tory, but as he hit the road Wednesday to pro­mote the plan, Repub­li­cans in Con­gress were qui­etly dis­cussing scal­ing back key pro­vi­sions in an ef­fort to de­liver the top White House pri­or­ity.

There’s al­ready talk that the cor­ner­stone of the GOP pro­posal — a dra­mat­i­cally re­duced 20% cor­po­rate tax rate that Trump has called a “red line” — may slip to 22% or 23%, those fa­mil­iar with ne­go­ti­a­tions said.

Trump had orig­i­nally promised a 15% rate for cor­po­ra­tions. But Repub­li­cans are run­ning into re­sis­tance from law­mak­ers and lob­by­ists who want to pre­serve de­duc­tions and loop­holes that were tar­geted for elim­i­na­tion un­der the White House plan to off­set the mas­sive cor­po­rate cut from the cur­rent 35% rate.

Some Repub­li­cans are also push­ing back against other parts of the pres­i­dent’s plan, such as scrap­ping the es­tate tax for the rich and elim­i­nat­ing de­duc­tions for state and lo­cal taxes, which would hurt res­i­dents in high-tax states like Cal­i­for­nia and New York.

At an evening rally in Har­ris­burg, Pa., Trump said the cor­po­rate rate would be “no more than 20%.” But ear­lier this week, he ac­knowl­edged that changes may lie ahead. “We'll be ad­just­ing a lit­tle bit over the next few weeks to make it even stronger,” he said.

Ne­go­tia­tors say changes will be needed if Republi-

cans, who can af­ford to lose only two votes in the Se­nate and about 20 in the House if no Democrats join in sup­port, hope to avoid an­other em­bar­rass­ing de­feat like the col­lapse of their Oba­macare re­peal plan.

Fis­cally con­ser­va­tive Repub­li­cans will be the hard­est to win over be­cause the GOP tax plan has been es­ti­mated by some out­side groups to add more than $2 tril­lion to the deficit over 10 years.

Repub­li­cans are rac­ing to pass their tax over­haul by the end of the year, hop­ing to give the econ­omy a boost and quiet com­plaints that they have ac­com­plished lit­tle with the party’s hold on the White House and Con­gress.

Yet even as Trump and top Repub­li­cans, in­clud­ing House Speaker Paul D. Ryan (R-Wis.) and Vice Pres­i­dent Mike Pence, talk up the tax plan in whistlestop tours across the na­tion, it re­mains in flux, more of a con­cept than a pro­posal. Ac­tual leg­is­la­tion re­mains weeks away.

“Ev­ery­thing is fluid right now,” said one busi­ness lob­by­ist, granted anonymity to dis­cuss the pri­vate talks, adding that there are “re­al­is­tic ten­sions” over the de­tails.

Repub­li­cans are find­ing that their de­sire for low­er­ing cor­po­rate and in­di­vid­ual rates is run­ning into the fis­cal chal­lenge of how to pay for the re­duc­tions with­out ex­ac­er­bat­ing the na­tion’s debt load.

They ar­gue that tax cuts, even if deficit-fi­nanced, will spur eco­nomic growth and pro­vide new rev­enue. But many econ­o­mists ques­tion that the­ory, say­ing it hasn’t worked that way in the past.

In ad­di­tion, Repub­li­cans — in or­der to take ad­van­tage of spe­cial bud­get rules that will al­low them to pass the tax plan in the Se­nate with a sim­ple ma­jor­ity — must find ways to off­set some of the costs. Ev­ery per­cent­age­point re­duc­tion in the cor­po­rate rate re­duces fed­eral tax rev­enue by about $100 bil­lion over 10 years. Slash­ing the cor­po­rate rate to 20% would cost about $1.5 tril­lion.

With lob­by­ists and law­mak­ers lin­ing up to pro­tect de­duc­tions and loop­holes, tax bill drafters are hav­ing a tough time find­ing ways to cover the costs.

One main rev­enue source, the elim­i­na­tion of state and lo­cal tax de­duc­tions, could gen­er­ate as much as $1.3 tril­lion over the decade. But talk of killing the de­duc­tion set off an outcry among high-tax state law­mak­ers in New York, New Jer­sey and Cal­i­for­nia. Talks are now un­der­way to re­struc­ture that pro­posal.

“As the swamp kicks in, they’re going to ar­gue to keep all their spe­cial loop­holes and de­duc­tions, and the more they get to keep, the less you can re­duce the tax rate,” said Rep. Dave Brat (R-Va.). “There’s going to be tremen­dous pres­sure, but that’s why we have to hold the line on that.”

Cor­po­rate tax rates have been the fo­cus through­out the process, as law­mak­ers try to bring the U.S. on par with the 35 de­vel­oped na­tions in the Or­ga­ni­za­tion for Eco­nomic Co­op­er­a­tion and Devel­op­ment, which have an av­er­age rate of 22.5%. Many U.S. cor­po­ra­tions, how­ever, pay much less than 35% thanks to loop­holes.

Low­er­ing cor­po­rate rates has been a top pri­or­ity for busi­nesses. The Koch brothers-aligned Free­dom Part­ners Cham­ber of Com­merce re­leased new ads Wednesday warn­ing law­mak­ers against pro­tect­ing fa­vorite de­duc­tions.

In Har­ris­burg, Trump ar­gued that cor­po­rate tax changes would ben­e­fit or­di­nary Amer­i­cans, de­liv­er­ing as much as $4,000 per house­hold. “You’re going to have so much money to spend,” he told the crowd.

The White House said chang­ing the way for­eign earn­ings are taxed — along with a one-time in­cen­tive to bring back some of the es­ti­mated $2.5 tril­lion U.S. companies have parked abroad — would re­sult in $4,000 more for Amer­i­can work­ers over an eight-year pe­riod.

But ex­perts doubted such a wind­fall would flow to work­ers and said the GOP’s planned changes to in­di­vid­ual in­come tax rates would largely ben­e­fit the wealth­i­est Amer­i­cans.

Mark Mazur, direc­tor of the Tax Pol­icy Cen­ter, said he was “in­cred­i­bly skep­ti­cal” of the White House’s $4,000 es­ti­mate, ex­plain­ing that there are many rea­sons why wages have not kept up with the growth of cor­po­rate prof­its. He cited less pow­er­ful la­bor unions and com­pe­ti­tion from lower-wage work­ers abroad.

On Wednesday, Ryan out­lined the sched­ule ahead dur­ing a closed-door meet­ing that left law­mak­ers ex­pect­ing a House vote on a tax bill by Thanks­giv­ing.

The Se­nate would follow if it clears a pre­lim­i­nary bud­get hur­dle next week. Sen. Rand Paul (R-Ky.) has panned the tax pro­posal as ben­e­fit­ing the wealthy. And Trump’s re­cent at­tacks on Sen. Bob Corker (R-Tenn.) cer­tainly won’t help win his vote. Even be­fore Trump mocked him, Corker was con­cerned the tax plan would in­crease the deficit.

But even as Repub­li­cans pur­sue a largely par­ti­san ap­proach with­out Demo­cratic in­put, some pre­dicted Wednesday there would be no ad­just­ments to the pro­posed 20% cor­po­rate rate, since that seemed to be a core area of agree­ment.

“That’s so locked and loaded that I just don’t see that chang­ing,” said Rep. Chris Collins (R-N.Y.), a Trump ally.

Rep. Mark Mead­ows (RN.C.), chair­man of the con­ser­va­tive Free­dom Cau­cus, said the 20% rate was “for sure. I have com­mit­ments.”

Man­del Ngan AFP/Getty Im­ages

PRES­I­DENT TRUMP ar­rived in Har­ris­burg, Pa., on Wednesday to pro­mote his tax pro­posal. He pledged that the cor­po­rate tax rate would be “no more than 20%,” but there are signs it might be a few points higher.

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