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Republicans Say They Have a Deal on Tax Bill Republicans Tax Bill in Final Sprint Across Finish Line
(about 4 hours later)
WASHINGTON — House and Senate Republicans have reached an agreement, in principle, on a consensus tax bill, keeping the party on track for final votes next week with the aim of delivering a bill to President Trump’s desk by Christmas, according to people briefed on the deal. WASHINGTON — The day after suffering a political blow in the Alabama special Senate election, congressional Republicans sped forward with the most sweeping tax rewrite in decades, announcing an agreement on a final bill that would cut taxes for businesses and individuals and mark the party’s first major legislative achievement since assuming political control this year.
Senator John Cornyn of Texas, the majority whip, told reporters that Republicans will be briefed on the deal today, and that he is confident it will be approved next week. Party leaders in the House and Senate agreed in principle to bridge the yawning gaps between their competing versions of the $1.5 trillion tax bill, keeping Republicans on track for final votes next week with the aim of delivering a bill to President Trump’s desk by Christmas. The House and Senate versions of the tax bill started from the same core principles — cutting taxes on business sharply, while reducing rates and eliminating some breaks for individuals — but diverged on several key details.
The agreement drops the corporate tax rate to 21 percent from the current 35 percent rate and will go into effect in 2018, rather than 2019, as the Senate bill originally called for, according to a senior Republican congressional aide. The bill also allows individuals to deduct up to $10,000 in state and local taxes, split between property taxes and either income or sales taxes paid. That move is intended to alleviate the concerns of House Republicans, particularly those from California, over the bill’s treatment of the state and local tax deduction. In the end, more of the Senate bill appeared to be included in the final version, though lawmakers continued to make significant changes from the legislation that passed either the House or Senate.
Lawmakers also agreed to rescind the corporate alternative minimum tax, which was tucked into the Senate bill at the last minute as a way to pay for the $1.5 trillion bill. The inclusion of the corporate A.M.T. was criticized by many business groups, who said it would prohibit the ability of companies to use tax breaks such as the research and development tax credit. The changes included a slightly higher corporate tax rate of 21 percent, rather than the 20 percent in the legislation that passed both chambers and a lower top individual tax rate of 37 percent for the wealthiest Americans, who currently pay 39.6 percent. But the bill will still scale back some popular tax breaks, such as the state and local tax deduction and the deductibility of mortgage interest.
The top individual income tax rate will drop to 37 percent, down from the current rate of 39.6 percent. But the rate will kick in for income levels below the $1 million cutoff outlined in both the House and Senate bills. In a break from the House bill, the agreement would allow taxpayers to continue to deduct high out-of-pocket medical expenses, and it would retain a provision allowing graduate students who receive tuition stipends to avoid paying taxes on that benefit. Also included in the consensus bill is the Senate’s repeal of the Affordable Care Act requirement that most Americans have health insurance or pay a penalty and a provision opening the Arctic National Wildlife Refuge to energy exploration.
The conference bill will preserve the individual alternative minimum tax, which the House bill had eliminated and the Senate bill retained in a watered-down form. The conference version will apply to even fewer taxpayers than the Senate bill would have, the congressional aide said. Still unclear is the overall cost of the revised legislation, which cannot exceed the $1.5 trillion bucket lawmakers have allowed if they want to pass the bill without Democratic support. Several of the provisions added by the Senate to help pay for the overall bill were either reversed or scaled back in the consensus version, and some tax breaks eliminated by the House were added back in.
The agreement in principle appears to allow some high-earning business owners to claim an even larger tax break than the Senate bill would have. Negotiators agreed to keep the Senate’s approach to provide a tax deduction for so-called pass-through companies, whose owners pay taxes on profits through the individual code. That deduction will likely be lower than the 23 percent deduction in the Senate-passed bill. The announcement that Republicans had overcome their differences to get to a consensus bill added more fuel to an already fast-moving sprint to the finish line. Republicans dismissed requests by Democrats to delay a vote until the new senator from Alabama, Doug Jones, is sworn-in.
“I see no need to wait for Doug Jones to become a senator. We vote all the time in lame duck sessions with retired and defeated members casting votes,” said Senator Susan Collins, Republican of Maine.
Senator John Cornyn of Texas, the majority whip, told reporters that he was confident the final bill will be approved next week. The heads of the tax-writing committees in the House and Senate, Representative Kevin Brady of Texas and Senator Orrin G. Hatch of Utah, each proclaimed a bill “close” to completion.
In a compromise between the bills, the deal would cap the popular deduction for interest on mortgage debt at $750,000 for newly-purchased homes, a higher cap than the $500,000 limit in the House-passed bill but lower than the $1 million limit that currently exists and remains in the Senate-passed bill.
The agreement would cut the corporate tax rate to 21 percent, which is lower than the current 35 percent rate but higher than the 20 percent that Mr. Trump had, until recently, said was nonnegotiable. The corporate rate will go into effect in 2018, rather than 2019, as the Senate bill originally called for, according to a senior Republican congressional aide.
The bill also allows individuals to somewhat choose how to use their state and local tax deduction, giving them the ability to write-off up to $10,000 in property taxes, income or sales taxes paid or a combination of property and sales or property and income taxes. That move is intended to alleviate the concerns of House Republicans, particularly those from California, over the bill’s treatment of the state and local tax deduction.
Lawmakers also yielded to concerns by business groups about the Senate’s last-minute inclusion of the corporate alternative minimum tax, which was added as a way to pay for the bill but faced stiff blowback from companies who said it would restrict their ability to use the research and development tax credit.
In an effort to assuage concerns that wealthy individuals would face a potential tax increase, the top individual income tax rate will drop to 37 percent, down from the current rate of 39.6 percent in the Senate bill and the 38.5 percent in the House bill. And the lower rate will apply to more people, allowing those with income levels below the $1 million cutoff outlined in both the House and Senate bills to claim the marginal rate.
The conference bill will preserve the individual alternative minimum tax, which the House bill had eliminated and the Senate bill retained in a watered-down form. But it will apply to even fewer taxpayers than the Senate bill would have, the congressional aide said. The alternative tax, which was put in place to ensure high-income earners didn’t exploit loopholes to avoid paying taxes, would kick in for individuals earning $500,000 and above and couples earning $1 million or more.
The agreement may allow some high-earning business owners to claim an even larger tax break than the Senate bill would have. Negotiators agreed to keep the Senate’s approach to provide a tax deduction for so-called pass-through companies, whose owners pay taxes on profits through the individual code. That deduction will likely be lower than the 23 percent deduction in the Senate-passed bill.
But, the aide said, the conference bill will include a House provision that would allow some pass-through owners with few employees — but large amounts of investment in their businesses — to bypass a limit on how much income qualifies for the preferential deduction.But, the aide said, the conference bill will include a House provision that would allow some pass-through owners with few employees — but large amounts of investment in their businesses — to bypass a limit on how much income qualifies for the preferential deduction.
The conference bill would also largely retain the Senate approach to taxing multinational companies. The conference bill would also largely retain the Senate approach to taxing multinational companies, by levying what is effectively a minimum tax on both American-based and foreign-based companies that operate in the United States.
President Trump praised House and Senate negotiators in a lunch meeting at the White House. “We’re very close to getting it done, we’re very close to voting,” Mr. Trump said of the tax bill. He added later, “This is the biggest thing that we’ve worked on.” Mr. Trump praised House and Senate negotiators in a lunch meeting at the White House. “We’re very close to getting it done, we’re very close to voting,” Mr. Trump said of the tax bill.
Mr. Trump also indicated he would accept a reduction in the corporate tax rate to 21 percent from 35 percent. Until recently, Mr. Trump had insisted on a corporate rate no higher than 20 percent. It is not clear if all Republican senators will roundly endorse the deal, which contains provisions that Ms. Collins and Senator Marco Rubio of Florida had raised concerns about earlier this week. Ms. Collins has said she’s not in favor of a lower individual rate, and Mr. Rubio has pushed for a more generous child tax credit.
It is not clear if Republican senators will roundly endorse the deal, which would allow provisions that Senators Susan Collins of Maine and Marco Rubio of Florida had raised concerns about earlier this week. Ms. Collins has said she’s not in favor of a lower individual rate and Mr. Rubio has pushed for a more generous child tax credit. Still, none of those concerned senators indicated on Wednesday that they were opposed to the bill taking shape under the agreement in principle, an encouraging sign for Republican leaders.
The Senate bill narrowly passed 51-49, with Senator Bob Corker, a Tennessee Republican, voting against the legislation, and other lawmakers, such as Ms. Collins, only getting on board once certain changes were made, such as expanding the medical expense deduction. The Senate bill narrowly passed 51-49, with Senator Bob Corker, Republican of Tennessee, voting against the legislation, and other lawmakers, such as Ms. Collins, only getting on board once certain changes were made, such as expanding the medical expense deduction. Mr. Corker said on Wednesday that “nothing has alleviated the concerns” that caused him to oppose the bill, which were rooted in a desire not to add further to the national debt.
The agreement was finalized on Wednesday morning, hours before the first and only scheduled public meeting of the congressional conference committee formed to work out the differences between the House- and Senate-passed versions of the bill.The agreement was finalized on Wednesday morning, hours before the first and only scheduled public meeting of the congressional conference committee formed to work out the differences between the House- and Senate-passed versions of the bill.
The push to pass the bill next week was sharply criticized by Democrats, who called on Republican leaders to slow what has been a sprint to pass the tax bill and wait for a newly-elected Democratic senator from Alabama, Doug Jones, to be seated before holding any more votes on the legislation. Mr. Jones won a special election on Tuesday night over Roy Moore, a Republican, flipping control of the seat and reducing the Republican Senate margin to 51-49. “Let’s understand what’s happening today is a sham,” said Senator Ron Wyden of Oregon, the top Democrat on the Finance Committee. “Nobody ought to mistake this conference for real debate.”
Senator Ron Wyden of Oregon, the top Democrat on the finance committee, tweeted on Wednesday morning that Republican leaders should delay the tax process until Mr. Jones takes his seat. Mr. Trump delivered what was dubbed a closing argument for the tax bill from the White House on Wednesday afternoon, flanked by five families who each took the microphone to extol the benefits of the tax bill on their households and communities.
Republican leaders gave no indication on Wednesday that they will delay the bill. “As a candidate I promised we would pass a massive tax cut for the everyday, working American families who are the backbone and the heartbeat of our country,” Mr. Trump said. “Now we are just days away from keeping that promise. We want to give you the American people a giant tax cut for Christmas.”
President Trump was preparing to deliver what administration officials called a “closing argument” for the tax bill on Wednesday. Mr. Trump will be flanked by five families the administration says would benefit from the bill’s tax cuts, and he will pitch the legislation as an opportunity to improve economic mobility and “restore the American dream,” those officials said. Mr. Trump added that if the bill were to be signed in that time frame, Americans would begin seeing tax cuts reflected in their paychecks by February, citing the Internal Revenue Service. “The cynical voices that opposed tax cuts grow smaller and weaker, and the American people grow stronger,” Mr. Trump said.
Mr. Trump will also have lunch with eight Senate Republicans on the conference committee, including Senator Orrin G. Hatch of Utah, and one House Republican, Kevin Brady of Texas, who chairs the Ways and Means Committee.
The House and Senate versions of the tax bill started from the same core principles — cutting taxes on business sharply, while reducing rates and eliminating some breaks for individuals — but diverged on several key details.
Those divergences included the size of an expanded child tax credit, which was larger, and able to be claimed by families much higher up the income scale, in the Senate bill; the treatment of pass-through owners, who received a large deduction in the Senate bill, but would have paid a reduced tax rate of no more than 25 percent in the House bill; and fundamental differences in the shape of a revamped system for taxing the profits of multinational corporations. The House also eliminated a host of individual tax breaks, including the ability to deduct student loan interest and medical expenses.
The Senate bill set individual tax cuts to expire, in order to comply with the rules of a budget procedure that allowed Republicans to bypass a Democratic filibuster as long as the legislation added no more than $1.5 trillion to the deficit over the next 10 years. The House bill’s cuts were permanent. The House bill would have eliminated the estate tax entirely after a period of several years. The Senate bill would have maintained the estate tax, though it would have applied to fewer taxpayers.
Even some areas where the bills matched up were fodder for controversy — and furious lobbying — in negotiations. Chief among them was the fate of the state and local tax deduction. Both bills eliminated deductions for state and local income and sales taxes paid, but allowed property tax deductions of up to $10,000 a year. Realtors and other groups pushed hard for that cap to be increased and for income taxes paid to also be allowed under it — a move that would have spared some higher-earning taxpayers in high-tax states such as California and New York from the tax increases they would have faced under the House and Senate bills.
A group of New York and New Jersey Republicans voted against the House bill over state and local deduction concerns. California Republicans largely backed the bill in the House, but they came under pressure during the conference negotiations to push for an expansion of the state and local deduction in order to avoid tax increases on many of their constituents.
Negotiators were also under pressure from business lobbyists to fix what appeared to be a drafting error in the Senate bill that could have effectively neutralized a popular tax break for business research and development. That error came in a last-minute move to reinstate a version of the corporate alternative minimum tax, which earlier bill versions had eliminated, and it forced Republicans to find other sources of revenue to compensate for their “fix” to the provision.