GOP lead­ers said to be mulling smaller cor­po­rate tax cuts

Last-minute changes in leg­is­la­tion prompt search for new rev­enue

The Washington Post - - ECONOMY & BUSINESS - BY DAMIAN PALETTA AND ERICA WERNER damian.paletta@wash­post.com erica.werner@wash­post.com

Lead­ing Repub­li­cans are look­ing at scal­ing back some of the cor­po­rate tax cuts that they are try­ing to usher into law, two peo­ple involved in the tax ne­go­ti­a­tions said, con­vinced that they need to find new rev­enue to make last-minute fixes to the gi­ant pack­age mov­ing through Congress.

The House and Sen­ate passed sep­a­rate tax cut pack­ages in re­cent weeks, and both bills would lower the cor­po­rate tax rate from 35 per­cent to 20 per­cent. But GOP ne­go­tia­tors are openly dis­cussing the possibility of mov­ing that rate up to 22 per­cent to free up more rev­enue, peo­ple fa­mil­iar with the dis­cus­sions said. One of those peo­ple said the 22 per­cent rate is “se­ri­ously un­der dis­cus­sion.”

The two peo­ple spoke on the con­di­tion of anonymity be­cause they are not au­tho­rized to dis­cuss sen­si­tive ne­go­ti­a­tions. No decisions have been made. The White House has been re­sis­tant to mak­ing this change, but Pres­i­dent Trump said ca­su­ally on Satur­day morn­ing that the 22 per­cent cor­po­rate rate might be nec­es­sary. Each per­cent­age point that is added back to the cor­po­rate rate would free up about $100 bil­lion in rev­enue over 10 years. Still, White House of­fi­cials have tried to stress to Congress in the past two days that their strong pref­er­ence is to keep the cor­po­rate rate at 20 per­cent.

Sen­ate Fi­nance Com­mit­tee Chair­man Or­rin G. Hatch (RU­tah) said that he, too, was re­sis­tant to rais­ing the rate.

“Not as far as I’m con­cerned,” he said. “It’s still 20.”

The House and Sen­ate must pass match­ing tax bills be­fore Trump can sign the pack­age into law. But there are a num­ber of changes Repub­li­cans want that would make the leg­is­la­tion more costly, and the pack­age can­not add more than $1.5 tril­lion to the debt over 10 years.

One of the changes they are con­sid­er­ing would re­peal, or at least se­verely scale back, an al­ter­na­tive-min­i­mum tax for cor­po­ra­tions that tries to limit the de­duc­tions and cred­its com­pa­nies can take. An­other ma­jor change re­ceiv­ing grow­ing at­ten­tion would al­low Amer­i­cans to deduct as much as $10,000 of state in­come tax or lo­cal prop­erty tax from their fed­eral in­come tax. The House and Sen­ate bills would al­low Amer­i­cans to deduct only the prop­erty tax com­po­nent, but law­mak­ers are look­ing to give peo­ple more flex­i­bil­ity.

An­other lead­ing Fi­nance Com­mit­tee mem­ber, Sen. Pa­trick J. Toomey (R-Pa.), cited both of those is­sues in ac­knowl­edg­ing that Repub­li­cans are look­ing for new rev­enue sources to ad­dress lin­ger­ing prob­lems.

“So we all un­der­stand there are some things that are go­ing to have to change. So we’re go­ing to have to fig­ure out how to do that,” Toomey said. “But I’m not pre­dict­ing that we’re go­ing to go to a 22 per­cent cor­po­rate rate.”

The White House and Repub­li­can lead­ers have heard nu­mer­ous com­plaints from wealthy GOP donors in Cal­i­for­nia and New York who be­lieve their taxes could go up un­der the new for­mula be­cause of lim­i­ta­tions on de­duc­tions. They are try­ing to make changes to ad­dress those con­cern be­fore the pack­age is com­pleted.

Trump ref­er­enced these com­plaints Wed­nes­day when he said that the fi­nal Repub­li­can tax bill should take care of the “tiny lit­tle sliver” of peo­ple who don’t ben­e­fit un­der the leg­is­la­tion as writ­ten.

“I think we’re go­ing to have a fan­tas­tic tax bill. There are very, very few peo­ple that aren’t ben­e­fit­ing by it, but there’s that tiny lit­tle sliver,” Trump said.

The pres­i­dent’s com­ments came as House and Sen­ate Repub­li­cans worked to iron out dif­fer­ences be­tween the tax bills passed by each cham­ber, with the goal of sending com­pro­mise leg­is­la­tion to Trump be­fore Christmas.

Sen­ate Ma­jor­ity Leader Mitch McCon­nell (R-Ky.) en­dorsed one change un­der con­sid­er­a­tion, which would al­low a $10,000 prop­erty-tax de­duc­tion in the bill to ap­ply to state in­come taxes as well. “That sounds like a kind of rea­son­able idea,” McCon­nell told radio host Hugh He­witt on Wed­nes­day.

There is be­lieved to be more than a “tiny lit­tle sliver” of Amer­i­cans who will miss out on ben­e­fits from the GOP leg­is­la­tion, ac­cord­ing to non­par­ti­san analy­ses that show the bills skew to­ward cor­po­ra­tions and the wealthy de­spite their billing as a mid­dle-class tax cut.

Ac­cord­ing to an anal­y­sis by the non­par­ti­san Tax Pol­icy Cen­ter, slightly more than 24 per­cent of tax­pay­ers would see a tax in­crease by 2027 un­der the ver­sion of the bill passed by the House.

Un­der the Sen­ate-passed bill, 48 per­cent of tax­pay­ers would pay more by then, largely be­cause of tax breaks that are set to ex­pire in five years. Repub­li­cans in­sist those tax would be ex­tended by a fu­ture Congress.

Both pieces of leg­is­la­tion fea­ture a mas­sive cor­po­rate tax cut at their cen­ter and add more than $1 tril­lion to the deficit, but there are a host of smaller dif­fer­ences that law­mak­ers are work­ing through. These in­clude the ef­fec­tive date of the cor­po­rate tax and han­dling of the al­ter­na­tive min­i­mum tax for in­di­vid­u­als and cor­po­ra­tions.

But the cen­ter­piece of the tax bill is the cor­po­rate tax cut, which the White House has said will help spur eco­nomic growth, hir­ing and in­vest­ment, and boost wages. Sev­eral Repub­li­cans com­plained

“There are very, very few peo­ple that aren’t ben­e­fit­ing by it, but there’s that tiny lit­tle sliver.” Pres­i­dent Trump, on the GOP tax plan

last week that GOP lead­ers had be­come ob­sessed with hold­ing the line on the 20 per­cent rate even if it meant by­pass­ing tax cuts for fam­i­lies, but GOP lead­ers were able to steer the bill through both cham­bers of Congress with this level in­tact.

GOP lead­ers hope to set­tle the is­sue soon.

The Sen­ate voted Wed­nes­day 51 to 47 to for­mally en­ter con­fer­ence ne­go­ti­a­tions with the House on the leg­is­la­tion, a pro­ce­dural step needed to move the process for­ward.

Ahead of the vote, Democrats and Repub­li­cans de­liv­ered floor speeches al­ter­nately ex­co­ri­at­ing the leg­is­la­tion or prais­ing it. Democrats are unan­i­mously op­posed to the bill but pow­er­less to stop it, be­cause Repub­li­cans are em­ploy­ing spe­cial rules that al­low pas­sage with a sim­ple ma­jor­ity in­stead of the 60 votes nor­mally re­quired in the 100-seat Sen­ate.

Trump also de­clared that “I can­not wait to sign these gi­ant tax cuts,” in­ac­cu­rately as­sert­ing, as he has done re­peat­edly, that they would be the largest tax cuts the na­tion has ever seen.

And he pre­dicted that gross do­mes­tic prod­uct would be­gin to grow by as much as 6 per­cent, a fig­ure that greatly ex­ceeds — in many cases even dou­bles — the pre­dic­tions of main­stream economists.

MELINA MARA/THE WASH­ING­TON POST

Sen. Pa­trick J. Toomey (R-Pa.), cen­ter, waits on an el­e­va­tor be­fore votes on the Sen­ate floor Wed­nes­day. A Fi­nance Com­mit­tee mem­ber, Toomey said he was not “pre­dict­ing” that a 22 per­cent cor­po­rate tax rate would be among changes in the Repub­li­can plan.

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