Tax cuts gain steam as Senate passes bill
WASHINGTON — Congressional Republicans, buoyed by the Senate’s approval early Saturday of a landmark tax overhaul, expressed confidence that final legislation will be sent to President Donald Trump this month.
Although the tax bills approved by the House and the Senate diverge in significant ways, the same forces that rocketed the measures to passage appear likely to bond Republicans in the two chambers as they work to hash out the differences.
However, Trump on Saturday suggested for the first time that he would consider significant changes to the emerging plan, including setting the corporate tax rate at 22 percent — a rate higher than what he had long demanded as the House and Senate crafted their respective bills.
Senate Republicans passed their bill just before 2 a.m. Saturday, two weeks after the House passed its measure. The Senate vote was 51-49, with every Republican but one — Sen. Bob Corker of Tennessee — in favor. Senate leaders locked down the necessary votes Friday with little drama after making concessions to a handful of wavering Republicans.
The plan to cut taxes by nearly $1.5 trillion has flown through Congress in the month since a bill was introduced in the House, with Republicans united in their belief in the economic power of tax cuts and desperate for a legislative victory to appease restless campaign donors and base supporters.
During a news conference after the Senate vote, Majority Leader Mitch McConnell, R-Ky., expressed little doubt that a consensus plan will soon become law after a conference committee resolves the differences between the two bills.
Trump echoed that optimism, writing on Twitter that “we are one step closer to delivering MASSIVE tax cuts.”
The differences between the measures, though substantial, do not appear troublesome enough to prevent Trump from achieving that goal, which would be his first major legislative victory.
Among the issues to be worked out: Under the Senate bill, tax cuts for individuals would expire at the end of 2025 to mitigate the losses in revenue, and the mandate that individuals obtain health insurance under the Affordable Care Act would be repealed. The House bill does not have those provisions.
The two versions also employ different methods to try to prevent multinational companies from shifting profits out of America and into lower-tax countries.
In addition, the House bill would set a new 25 percent top tax rate for profits earned by small businesses and other pass-through companies, while the Senate bill would give the owners of those companies a 23 percent deduction on pass-through income, which is taxed at rates for individuals.
The House bill would eliminate the alternative minimum tax for corporations and individuals and eventually eliminate the estate tax. The Senate bill would maintain the corporate AMT and trim — but not end — the individual AMT and the estate tax.
Still, the bills share much of the same architecture and many core elements.
Both bills would eliminate deductions for state and local income taxes, nearly double the standard deduction for individual filers, and reduce individual tax rates. Because of those provisions, both bills are projected to cut taxes initially for the bulk of middle-class taxpayers, yet raise them on millions of other middle-class families.
The House bill would preserve a deduction for up to $10,000 a year in state and local property taxes. The Senate bill would, too, thanks to a last-minute change that helped gain the support of Sen. Susan Collins, R-Maine.
Both bills also would cut the top corporate tax rate to 20 percent from 35 percent.
As Trump was traveling to New York on Saturday, he told reporters that he might accept 22 percent.
“Business tax all the way down from 35 to 20,” Trump told reporters, remarking on one of the elements of the Senate bill. “It could be 22 when it all comes out, but it could also be 20. We’ll see what ultimately comes out.”
Every percentage-point change in the corporate tax rate is the equivalent of roughly $100 billion in revenue over 10 years. So moving the rate up two points would generate roughly $200 billion in revenue.
Sen. Ron Johnson, R-Wis., had proposed setting the rate at 22 percent to allow the tax cut to kick in next year rather than delay it until 2019. But Trump is also under considerable pressure from donors to lower the top tax rate paid by wealthy individuals. Their tax rate does not fall much in the House and Senate tax overhaul plans, which led to complaints from wealthy GOP campaign contributors.
In contrast, several months ago, then-chief strategist Stephen Bannon advocated raising the top tax rate paid by the wealthiest Americans as a way to follow through on some of the populist principles Trump invoked during his campaign.
Trump did not explain Saturday why he is considering allowing a 22 percent rate. He had insisted for months that the corporate rate needed to be lowered to 15 percent, and he was angry when his top aides had to inform him that the 20 percent rate was the goal GOP congressional leaders had set.