House, Senate hash out tax reforms
Highest bracket would fall from 39.6 to 37%; corporate rate would tick up to 21%
House and Senate negotiate last-minute deals: lower taxes on wealthy, higher deductions for others.
WASHINGTON — Congressional Republicans on Tuesday rushed toward a deal on a massive tax package that would reduce the top tax rate for wealthy Americans to 37 percent and slash the corporate rate to a level slightly higher than what businesses and conservatives wanted.
In a flurry of last-minute changes that could profoundly affect the pocketbooks of millions of Americans, House and Senate negotiators agreed to expand a deduction for state and local taxes to allow individuals to deduct income taxes as well as property taxes. The deduction is valuable to residents in high-tax states like New York, New Jersey, Illinois and California.
Negotiators also agreed to set the corporate income tax rate at 21 percent, said two congressional aides who spoke on condition of anonymity because they were not authorized to publicly discuss private negotiations. Both the House bill and the Senate bill would have lowered the corporate rate from 35 percent to 20 percent.
Business and conservative groups lobbied hard for the 20 percent corporate rate. Negotiators agreed to bump it up to 21 percent to help offset revenue losses from other tax breaks, the aides said.
As the final parameters of the bill took shape, negotiators agreed to cut the top tax rate for individuals from 39.6 percent to 37 percent in a windfall for the richest Americans. The reduction is certain to provide ammunition for Democrats who complain that the tax package is a massive giveaway to corporations and the rich.
Under current law, the top tax rate applies to income above $470,000 for married couples, though lawmakers are completely reworking the tax brackets.
Among the other tax breaks, negotiators agreed to eliminate the alternative minimum tax for corporations, a big sticking point for the business community, the aides said. They also agreed to let homeowners deduct interest on the first $750,000 of a new mortgage, down from the current limit of $1 million.
The GOP goal is to deliver to President Donald Trump the first major rewrite of the U.S. tax system in more than 30 years, pushing into every corner of the American economy and society. Lawmakers hope to finalize a bill no later than Friday, vote next week and deliver the package of steep tax cuts for corporations and more modest cuts for families to the president’s desk before Christmas.
Republican lawmakers were optimistic Tuesday that a deal was imminent. The total amount of tax breaks cannot exceed $1.5 trillion over the next decade, under budget rules adopted by both the House and Senate.
Lawmakers and aides were working to blend separate tax bills that were passed by the House and Senate.
Lawmakers said workers could start seeing changes in the amount of taxes withheld from their paychecks early next year. However, taxpayers won’t file their 2018 tax returns until the following year.
Both the House and Senate bills would scale back the deduction for state and local taxes, limiting it to $10,000 in property taxes. California Republicans have pushed to amend the bill to enable individuals to deduct state and local income taxes as well as property taxes. Rep. Pete Sessions, R-Texas, said there is an agreement on how to address the issue, though he wasn’t specific.
“It’s a huge issue in districts and there’s an agreement about how they are going to approach it and I just want to see that issue taken care of,” said Sessions, chairman of the House Rules Committee. “Once again, we’re in negotiation, and sometimes when you negotiate you have to decide what you’re willing to fight for and we need to fight for that.”
The House bill would limit the mortgage interest deduction to the first $500,000 of a new mortgage, while the Senate bill would keep the current limit of $1 million. Two congressional aides said negotiators have agreed to split the difference.
The provision would not affect current mortgages.
Meanwhile, Trump on Tuesday signed into law a sweeping defense policy bill that authorizes a $700 billion budget for the military, including additional spending on missile defense programs to counter North Korea’s growing nuclear weapons threat.
But there’s a catch. The $700 billion budget won’t become reality until lawmakers agree to roll back a 2011 law that set strict limits on federal spending, including by the Defense Department, and they haven’t yet.