- House and Senate Republicans have come to a preliminary final agreement on their compromise tax bill.
- The bill proposes cutting the corporate tax rate to 21% – higher than the 20% in the House and Senate versions but still much lower than the current 35%.
- It would also lower the top individual tax rate to 37% from the current 39.6%, a more generous cut than the Senate version had proposed.
Republican leaders on Wednesday reached an agreement on their final tax bill, paving the way for an overhaul of the federal tax code by Christmas.
Republicans are moving with full speed to pass the tax bill, a process that gained urgency after the Democrat Doug Jones’ unexpected victory Tuesday in Alabama’s special election for a US Senate seat.
The bill, called the Tax Cuts and Jobs Act, is in a conference committee to iron out discrepancies between the House and Senate versions that those chambers passed. The final bill could have significant changes.
The Republican members of the committee have struck a preliminary deal that would make the corporate tax cuts slightly less generous while also lowering taxes on the wealthiest Americans.
“We’re very close,” Sen. John Cornyn, the No. 2 Republican in the chamber, told Politico on Wednesday. “I don’t want to get out in front of the chairmen, but we’re very close.”
Sen. Orrin Hatch, a conferee who chairs the Senate Finance Committee, told reporters the GOP members of the conference committee “got a pretty good deal.”
Hatch and Rep. Kevin Brady, the chairman of the House Ways and Means committee, at a Wednesday meeting presented the deal to President Donald Trump, who said he approved of the deal and was hoping to sign the bill soon.
Brady said the official text of the compromise bill would not be released until Friday – and it will still need to be evaluated by congressional scorekeepers, such as the Joint Committee on Taxation. Republican leaders say they are aiming to hold a vote on the bill on Monday and Tuesday. That could get it to Trump’s desk by the end of next week.
While the bill’s passage is not guaranteed, the GOP has enough of a cushion to get it through both chambers, and Jones’ win is likely to light a fire under the party to get it done before he is sworn in, most likely next month.
Here’s a rundown of some of the big changes that are reportedly in the agreement:
- A less generous corporate rate cut.Republicans may cut the corporate rate to 21% from the current 35%, starting in 2018. The House and Senate versions had proposed a 20% rate. Despite making a 20% corporate rate his “red line” for a tax bill, Trump said at a meeting with the GOP leaders of the tax committees that he would sign a bill with a 21% rate.
- A lower top individual tax rate. The top individual bracket would drop to 37% from the current 39.6%. The Senate version had proposed a 38.5% rate.
- Keep the estate tax, but raise the threshold to qualify. Instead of phasing out the estate tax over time, as the House version proposes, the compromise bill would increase the threshold for an estate to qualify, to about $US11 million from $US5.6 million. That aligns with the Senate version.
- A 20% deduction for pass-through businesses.Pass-through businesses – in which the owner books profits as their income, like a limited liability corporation or S-corp – would get a 20% deduction on their income. This is more similar to the Senate version but less generous than its proposed 23% deduction.
- Repeal the corporate alternative minimum tax.The corporate AMT in the Senate version was a sore spot for many companies because it would have negated the effects of many popular deductions and credits, such as the research and development credit.
- Adjust the cap for the mortgage interest deduction. The cap would be lowered to $US750,000 from the current $US1 million. This is higher than the $US500,000 cap proposed in the House version. The Senate version would have left the deduction unchanged.
- Does not include the House’s “graduate student tax.” The House bill would have taxed tuition waivers for graduate students like normal income, which critics said could have crippled many universities’ graduate programs. Even some House Republicans came out against the provision. The Senate version did not include it, and the compromise bill will not either.
- Compromise on the state and local tax deduction. The bill would allow people to deduct up to $US10,000 in state and local property taxes or the same amount of income and sales taxes – a nod toward appeasing House members in states with high taxes.
- Repeals Obamacare’s so-called individual mandate. This proposal – to eliminate the requirement that most Americans have health insurance or pay a fine – was in the Senate’s version of the bill. Given the GOP’s longtime desire to repeal and replace Obamacare, officially the Affordable Care Act, House Republicans are likely to support this.
- Keeps a slew of popular tax breaks.According to The Wall Street Journal, the bill would preserve deductions for medical expenses and student loan interest, as well as tax-free private-activity bonds used by local governments to build things like hospitals.
In addition to last-minute tweaks, the final bill is also likely to include large-scale changes to the types of deductions that individuals and businesses can take, as well as other tax adjustments in the House and Senate versions.
Republicans could push back on some of the proposed changes, such as those to healthcare provisions that have prompted complaints from Sen. Susan Collins.
Sen. Marco Rubio also made noise on Twitter about not making the child tax credit more generous in the compromise bill. He tweeted on Tuesday: “20.94% Corp. rate to pay for tax cut for working family making $US40k was anti-growth but 21% to cut tax for couples making $US1 million is fine?”
The Florida Republican had pushed for an amendment to the Senate version that would have made the child tax credit refundable, but it was defeated.
Republicans can afford only two defections in the Senate for the bill to pass. Republican Sen. Bob Corker of Tennessee voted against the legislation when it moved through the chamber earlier this month.
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