Republicans strike deal on sweeping tax overhaul
Reposted from Politico.com
Republicans struck a deal on a sweeping tax overhaul Wednesday, including steep corporate and individual rate cuts, and hope to have legislation on President Donald Trump’s desk by next week.
The agreement includes a 37 percent top tax rate for individuals, Senate Majority Whip John Cornyn (R-Texas) said, lower than either the House or Senate called for earlier. The corporate tax rate would be 21 percent, higher than the 20 percent in each chamber’s separate legislation, and would start in 2018 instead of being delayed until 2019 as the Senate propose
“Pass-through” businesses that pay taxes through the individual side of the tax code would get a 20 percent deduction, and businesses would get to immediately write off investments for the next five years. The corporate alternative minimum tax, which business groups had fought hard to get squelched in a final deal, is out, sources said. The AMT for individuals is retained, though fewer people are expected to pay it as the exemption would be raised to $1 million for couples.
The estate tax, long a target for elimination by Republicans, would be kept, Cornyn said, though the exemption would be doubled.
The final legislation would also end Obamacare’s mandate that all Americans have health insurance or face a fine.
The Senate plans to take up the bill first, on Monday, with a final vote by the chamber on Tuesday
Republicans plan to release the details of the agreement by the end of this week, a GOP aide said. They still need to finish writing the legislative text, and get a final budgetary accounting by the official Joint Committee on Taxation.
Getting tax reform across the finish line would give Republicans the major legislative victory that has eluded them all year and mark arguably the biggest change to the tax code in more than 30 years. The GOP wants to pass the compromise legislation before Christmas, despite calls from Democrats to wait and allow Democrat Doug Jones, who won the Alabama Senate race in a stunning upset Tuesday night, to vote on the measure.
The lower top individual tax rate is sure to play into Democrats’ complaints that the bill is a giveaway to the wealthy. But sources indicated Tuesday it was necessary to make other deals work, including one on the state and local tax deduction.
That agreement would allow taxpayers to choose a property tax deduction along with either an income or sales tax deduction, with a $10,000 limit, according to a source familiar with the plan.
The issue has been a major snag throughout the tax fight, with Republican lawmakers from the Northeast clamoring for the property tax deduction and those from California insisting on the income tax write-off. Republican leaders originally wanted to abolish the entire state and local tax deduction.
“From my perspective, the bill’s just getting better in the process,” said Rep. Tom MacArthur (R-N.J.), who supported the original House version despite opposing its elimination of the tax break.
The 21 percent corporate tax rate would be a major reduction from the 35 percent rate set in law now, though many businesses don’t actually pay the top rate. The nudge up from 20 percent would help make the plan’s math more workable given the strict budget rules Republicans have to follow in the Senate.
Trump indicated he would support a 21 percent corporate rate on Wednesday afternoon.
“We’re going to see where it ends up but it’s at 35 right now. If it got down to 21, I would certainly — I would be thrilled. We’ll see,” he told reporters at the White House before having lunch with GOP tax writers. “We haven’t set that final figure yet, but certainly, 21 is a very great difference.”
Another major issue that confronted negotiators was how to treat the pass-through businesses.
Sen. Ron Johnson (R-Wis.), a swing vote on the tax plan, told reporters he could support a smaller deduction for pass-through businesses than the 23 percent he had secured in the Senate’s draft of the plan “if it’s married to 37 percent top [income tax] rate” for individuals.
There was also a deal to allow homeowners to deduct the interest on up to $750,000 in mortgage debt, down from $1 million now. Negotiators dropped a House plan to tax as income college tuition waivers for graduate students working as teaching or research assistants.
As most Republicans welcomed the news that the final pieces of the legislation were falling into place, Democratic lawmakers and senior officials in the party began using Jones’ victory almost immediately after the returns came in on Tuesday night to demand the vote be delayed
“I am hoping that Republican leaders accept the will of the people of Alabama and halt their attempt to jam through massive tax cuts for the rich until Sen.-elect Jones is seated,” said Washington Sen. Patty Murray, the third-ranking Senate Democrat.
At the start of the conference meeting, Rep. Richard Neal of Massachusetts, the top Democrat on the House Ways and Means Committee, requested such a delay but was shot down.
“That motion is not available,” Chairman Kevin Brady (R-Texas) said.
Democrats pointed to a similar dynamic in 2010, when Republican Scott Brown defeated Martha Coakley in a political shocker in Massachusetts, denying Democrats a filibuster-proof majority in the Senate while they were deep in the middle of the Obamacare battle. Then-Senate Majority Leader Harry Reid declared that Democrats would not “rush into anything” in light of Brown’s victory in the special election.
But Republicans show no sign of relenting, and with a deal in principle, attention turns to a handful of Republican senators who have held considerable leverage in the tax fight.
Among them are Sen. Susan Collins of Maine, who had extracted a promise from Senate GOP leaders that the health care stabilization measures she’s sought will become law this year. She stressed on Wednesday that she doesn’t believe the top individual tax rate should be lowered, although she said she was more focused on bumping up the proposed 20 percent corporate rate in order to pay for other priorities.
“I haven’t seen the conference agreement,” she told reporters. “I always wait until the conference report is finished before making a final decision.
Negotiators also agreed to another of Collins’ priorities: keeping a deduction for un-reimbursed medical expenses that exceed 10 percent of a taxpayer’s adjusted gross income, but lowering the threshold to 7.5 percent of AGI for two years.
Sen. Marco Rubio (R-Fla.) hinted Wednesday that his vote for the plan was not guaranteed. He has demanded that, if his colleagues back off their promises to cut the corporate tax rate to 20 percent, they must use at least some of the budget savings to expand the refundability of the child tax credit, which allows people to get a tax refund even if the amount of the credit exceeds what they owe in taxes.
“If the conference agreement does not make some improvement on the refundability, the leadership knows where I stand,” he said Wednesday.
He declined to clarify other than to say he’s “not going to make public threats about anything. I’ll just do what I need to do.”
During the Senate’s consideration of its draft of the plan, Rubio offered an amendment that would have cut the corporate rate to 20.94 percent, and used the savings to make the child credit refundable against payroll taxes. It was defeated by his colleagues as Republicans held the line on a 20 percent corporate rate.
Sen. Bob Corker of Tennessee, the only Republican to vote against the Senate bill because of its impact on the deficit, was non-committal.
“I’m, just as I do on all of these votes, looking at where things are and voting as if I’m the deciding vote,” Corker said of the tax compromise. “Whether I am or not.”
Other Republicans once considered shaky were upbeat on Wednesday. Sen. Lisa Murkowski (R-Alaska) suggested she had some misgivings about the lower top individual rate, but said she was satisfied with the end product overall.
“Obviously, there was a great deal of give-and-take and back-and-forth and compromise,” said Murkowski, who won an opening for oil drilling in an Arctic wildlife refuge as part of the tax bill. “And everything doesn’t come out exactly as you would have liked. I think the product we’re at is a good one.”
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