GOP reaches tentative deal on taxes
Tentative accord sets corporate rate at 21%, top rate at 37%
The corporate rate would be 21 percent, while the top individual tax bracket would drop to 37 percent. Now the push is on for voting next week, although more negotiations could take place first. Lawmakers from both chambers want to forge a bill ready for the president’s signature by Christmas.
WASHINGTON — Republican leaders on Wednesday agreed on a revised tax plan that would lower the corporate rate from 35 percent to 21 percent and drop the top individual rate for the richest Americans to 37 percent, according to GOP senators and others briefed on the deal.
The tentative accord marked a significant step in the GOP push to have a tax bill on President Donald Trump’s desk by Christmas. Leaders did not release the details of the compromise or text of a final bill as negotiations continued.
“It’s critically important for Congress to quickly pass these historic tax cuts,” Trump said Wednesday, promising Americans could begin to reap the benefits of the plan as early as February, if passed.
Critics, however, said the latest changes — particularly the lowering of the top individual rate from the current 39.6 percent — reaffirmed several independent analyses that show the bulk of the savings from the GOP plan will go to businesses and the wealthy.
“How’s it going to help the middle class?’’ asked Sen. Chuck Schumer, the Democratic leader in the Senate.
Even some Republicans privately said such a change was risky since Trump and GOP leaders have tried to portray their sweeping plan as aimed at ordinary Americans. One GOP senator called it a “bad idea.”
Still, Republicans were determined to push the proposal forward for votes, scheduled next week, as they rush to achieve a yearend accomplishment.
House and Senate lawmakers met Wednesday on a conference committee to combine the bills from their two chambers, even though the agreement had been reached ahead of time.
“They’re grasping for a political life-preserver,” said Rep. Lloyd Doggett of Texas, a top Democrat on the Ways and Means Committee. Democratic Rep. Sander Levin of Michigan, called the session a “mockery.”
The last-minute reduction in the top individual rate was added to appeal to GOP donors and upperincome households — key Republican constituencies that had complained they might end up paying higher taxes in the earlier versions. The income level for that top rate is also expected to be increased from the current level, but a final figure was not released.
The original House plan retained the current 39.6 percent top rate while the Senate version lowered it to 38.5 percent.
The change drew sharp criticism from Democrats. “They’re still raising taxes on middle-class families,” said Sen. Maria Cantwell, D-Wash., a member of the committee.
Earlier versions also would have lowered the corporate rate to 20 percent, a foundation of the GOP plan. But in reconciling the separate plans, leaders decided to nudge up the corporate rate in order to pay for benefits elsewhere, including the lower top rate. The 1 percentage point increase will provide an extra $100 billion over 10 years.
The new 21 percent corporate rate would take effect starting in 2018, rather than 2019 as in the Senate plan, and appeared to have support from conservative groups.
Due to Senate rules, the entire package cannot add more than $1.5 trillion to the deficit over 10 years, forcing GOP negotiators to scramble to make trade-offs to stay under that cap.
Among other compromises, the final bill will allow mortgage interest deductions on loans up to $750,000 and deductions for state and local income or property taxes up to $10,000, according to those briefed on the plan.
Though the plan would increase the standard deduction for couples to $24,000, the caps on mortgage and state tax deductions would have a significant impact in high-cost states such as California, New York and New Jersey. It may not win back some Republican lawmakers from those states who opposed limiting the writeoffs.
The plan will also include the Senate provision that will repeal the Obamacare requirement that Americans buy health insurance.
And it will include a measure to open a portion of the Arctic National Wildlife Refuge to oil and gas drilling, a provision important to Sen. Lisa Murkowski, R-Alaska.
“Not only will #TaxReform bring relief to middle class Americans, it will also repeal Obamacare’s individual mandate tax and provide for our nation’s #energy future by further developing Alaska’s oil and gas potential,” tweeted Senate Majority Leader Mitch McConnell.
Regarding so-called pass-through entities, which include small businesses but also hedge funds and real estate ventures such as those held by Trump, negotiators agreed to allow them to deduct 20 percent of their income before paying taxes based on the individual rate.
That’s lower than the 23 percent income deduction that had been negotiated by Sen. Ron Johnson, R-Wis., in exchange for his support. But he said Wednesday he was “encouraged” by the deal. “Obviously, I fought hard,” he said. “That passthrough rate remains competitive.”
The final measure will repeal the so-called alternative minimum tax for businesses but retain it for individuals, albeit with a higher income threshold.
Sources said GOP leaders felt confident they had enough agreement from House and Senate Republicans to push the revisions forward.
But many lawmakers did not immediately commit support. Both chambers will need to pass the revised measure.
Rep. Lee Zeldin, R-N.Y., worried the new approach doesn’t do enough for middle-income families. “Many middle-income taxpayers ... were promised a tax cut and won’t being seeing the tax relief that they’re expecting,” he said.
Though the plan will lower rates for many individual taxpayers, several studies have shown the GOP measure will result in tax hikes for some, particularly low-income Americans. And the new lower rates for individuals are expected to expire in eight years, leading to tax increases for most Americans.
Corporate tax cuts will be permanent under the revised plan.
Sen. Susan Collins (RMaine), another key Senate vote, was noncommittal Wednesday.
Democrats meanwhile called for postponement of a vote on the bill until the new senator-elect from Alabama, Doug Jones, takes his seat. Jones’ victory will cut the GOP Senate majority to 51-49.