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Plan cuts corporate tax rate to 21%, repeals individual mandate.

Bloomberg, Content provider

December 14, 2017

11 Min Read
President Donald Trump speaks to a group of families, Young Republicans and College Republicans at the White House.Chris Kleponis/Pool/GettyImages

by Bloomberg News 

President Donald Trump made what his staff members called a “closing argument” for tax-overhaul legislation Wednesday as congressional Republicans hammered out last-minute revisions to key provisions. Here are the latest developments, updated throughout the day:

Here’s Where the Agreed-Upon GOP Plan Stands (2:50 p.m.)

Details of an agreement among House and Senate Republicans emerged Wednesday -- including rate cuts for corporations, individuals and pass-through businesses. Here’s what tax negotiators have agreed to, according to lawmakers -- and how the new plan differs from bills that passed both chambers earlier:

Corporate Rate

  • Joint Agreement: Cut the corporate rate to 21% from 35% beginning in 2018.

  • House: Cut to 20% in 2018.

  • Senate: Cut to 20% in 2019. 

Top Individual Rate

  • Joint Agreement: Cut the top rate to 37% for the highest earners, down from 39.6%.

  • House: Leave top rate at 39.6%.

  • Senate: Cut top rate to 38.5%.

Pass-Through Tax Breaks

  • Joint Agreement: Provide a 20% deduction on pass-through business income, and extend that break to trusts as well as individuals.

  • House: Tax such business income at a top rate of 25%, but service businesses like accounting and law firms wouldn’t be eligible. Provide a lower rate of 9% for some lesser-earning businesses.

  • Senate: Provide a 23% deduction, with limitations related to taxable income and amount of wages paid.

Corporate Alternative Minimum Tax

  • Joint Agreement: Repeal it.

  • House: Repeal it.

  • Senate: Maintain it.

Obamacare Individual Mandate

  • Joint Agreement: Repeal it

  • House: No action.

  • Senate: Repeal it by zeroing out the tax penalty for individuals who don’t purchase health insurance.

Mortgage Interest Deduction

  • Joint Agreement: Cap it at loans of $750,000 -- down from $1 million -- for new purchases of homes.

  • House: Cap it at loans of $500,000.

  • Senate: No change.

In addition, tax writers plan the following change, according to people familiar with the discussions:

Individual State and Local Tax Deductions

  • Joint Agreement: Limit combined deductions for state and local income taxes and property taxes to $10,000.

  • House: Repeal deduction except for property taxes, capped at $10,000.

  • Senate: Repeal deduction except for property taxes, capped at $10,000.

 -- John Voskuhl

McConnell Says ACA Mandate Repeal in Overhaul (2:14 p.m.)

Senate Majority Leader Mitch McConnell said in a statement Wednesday that a tax overhaul will include the repeal of the mandate for individuals to buy insurance -- a core part of the 2010 Affordable Care Act.

The tax bill approved by the Senate on Dec. 2 included the individual mandate repeal, while the House bill didn’t. House Republicans mostly support repealing the mandate.

The repeal of the mandate is seen as a win-win for most Republicans -- smashing Obamacare, as they’ve promised to do for years, while raising some $300 billion to pay for tax cuts. The Congressional Budget Office has said the savings would result because the federal government would no longer have to provide subsidies for roughly 13 million people who would no longer be insured.

Republican Senator Susan Collins of Maine voted to approve the Senate tax bill after she said McConnell had committed to support the passage of two pieces of legislation before the end of the year to mitigate the cost of health insurance premiums. Collins has said she’ll wait to see the final version of the tax legislation before deciding how to vote.

Senator Bob Corker of Tennessee, the only Senate Republican to vote “no” for the tax bill, said he’s still undecided on a final vote. Still, he said that his concerns about tax cuts adding to the deficit haven’t been addressed at all.

Corker confirmed a tax compromise will feature a 21% corporate rate and a top individual rate of 37%. He added that there is a long list of pay fors to offset the cost of a lower individual rate. -- Erik Wasson and Allyson Versprille

Tentative Deal Said to Repeal Corporate AMT (1:58 p.m.) 

A compromise that’s gathering steam among Senate and House Republicans is likely to include a full repeal of the corporate alternative minimum tax, according to three people familiar with the discussions.

Senate Republicans included a last-minute change in the bill they approved Dec. 2 that would have preserved the corporate AMT at 20%. Business groups criticized the surprise move, which would have invalidated various tax breaks that the bill’s drafters intended to preserve.

Also Wednesday, Trump said he’s receptive to setting the corporate tax rate at 21% -- a change that’s also said to be part of the emerging deal. “We haven’t set that final figure yet, certainly 21 is a very great success,” Trump said. --Sahil Kapur, Jennifer Dlouhy and Kaustuv Basu

State Income Break Said to Be Part of Deal (1:09 p.m.)

A tentative deal reached by House and Senate lawmakers includes letting taxpayers deduct state income taxes in addition to property levies -- up to a $10,000 cap, according to two people briefed on the details.

The versions of the bills approved by the House and Senate just preserved the individual deduction for state and local property taxes -- capped at $10,000 -- but not for income taxes. House and Senate leaders, along with the White House, had previously signaled they were open to including state income tax deductions in the cap. 

Under the House and Senate agreement, pass-through entities would be able to deduct 20% of their business income, instead of 23% as originally proposed in the Senate bill approved Dec. 2, the people said. The top individual tax rate would also be lowered to 37%, said the people, who asked not to be named because the discussions are private. Combined with a lower individual income rate, the change would still provide roughly the same amount of relief for owners of the most lucrative pass-through businesses.

The tentative accord comes as some Republican senators are still being briefed, and before the first open meeting of conferees at 2 p.m. on Wednesday. 

President Donald Trump said Wednesday afternoon that passage of the bill would be a “historic” victory and that Republicans are “very, very close” to an agreement as he met with congressional negotiators at the White House.

“I think the conferees have reached a good place,” said Senator Thom Tillis of North Carolina regarding the tentative deal. -- Sahil Kapur

Negotiators Are Said to Reach Tentative Deal (12:13 p.m.)

House and Senate negotiators have reached a tentative compromise for the tax overhaul, said a person familiar with the conversations who asked not to be named because the discussions are private. 

Lawmakers still need to get a cost analysis of their agreement, so it’s not yet definite, the person said.

House Ways and Means Chairman Kevin Brady, who’s overseeing the House-Senate conference committee, said he couldn’t confirm that a tentative deal had been reached, adding there is still work to do. 

Representative Dave Reichert, a Washington Republican on the Ways and Means Committee, said there are still details to nail down. 

The House-Senate conference committee is scheduled to hold its first and only public meeting at 2 p.m. on Wednesday. Thus far, negotiations on the tax overhaul have taken place behind closed doors. -- Kaustuv Basu and Erik Wasson

GOP Plans to Set 21% Corporate Rate in 2018 (11:40 a.m.)

Senate Majority Whip John Cornyn, a Texas Republican, said House and Senate lawmakers are “very close” on a deal that would meld their approaches to overhauling the tax code. “I think you’ll hear an announcement here relatively soon,” said Cornyn, the chamber’s second-ranking GOP leader.

The current plan is to set a corporate rate of 21%, but make that rate cut effective in 2018 -- a year earlier than the Senate’s measure would have -- according to a Republican official who asked not to be named because the discussions are private.

Republicans in both chambers had approved cutting the corporate rate to 20% from the current 35%, but the House plan would make that move in 2018.

Lawmakers are also leaning toward keeping the estate tax, the official said. Both chambers called for doubling the exemption limits for the tax, but the House bill calls for its full repeal in 2025. Negotiators are also planning to set a top individual tax rate of 37% and cut the mortgage deduction limit to $750,000 from $1 million, according to the official.

Republicans are trying to get final legislation hammered out in time for President Donald Trump to sign it next week -- giving the party a long-sought major policy victory before the end of 2017. 

An announcement of a deal between the House and Senate is likely Wednesday, according to a source familiar with the discussions who asked not to be named because the talks are ongoing. 

The Senate’s top Democrat, Chuck Schumer of New York, on Wednesday called for Majority Leader Mitch McConnell to delay a vote on the tax bill until Democrat Doug Jones, who won a special election in Alabama Tuesday, could be seated. That would take the GOP’s majority down to 51-49.

GOP Senate leaders have reiterated their desire to send the bill to Trump next week. -- Steven T. Dennis, Ari Natter, Laura Litvan

GOP Eyes Cut for Top End, 21% Corporate Rate (4:00 a.m.) 

Million-dollar earners would get a bigger tax break, and corporations would get a slightly smaller one under changes Republican tax writers were discussing behind closed doors Tuesday -- changes that would revamp their overhaul legislation as it nears final votes next week.

Lawmakers and congressional staffers worked into the night Tuesday, amid discussions of setting the top individual tax rate at 37% -- down from the current 39.6% and lower than the Senate’s plan to set the top rate at 38.5%. Discussions of that potential boon for the highest earners -- confirmed by two people familiar with the talks -- come as Trump plans to pitch the bill’s benefits for American families during a White House speech on Wednesday.

Despite strong support for the tax plan among Republican lawmakers, who are rushing to complete the bill for Trump’s signature next week, polls show the plan is unpopular with Americans amid perceptions that the tax changes would favor the wealthy. Administration officials say the polls have been skewed and they predict the plan’s popularity would grow as Americans focus on the legislation’s specifics.

But lawmakers were considering changing those details on Tuesday as people familiar with the secret negotiations described various potential revisions:

  • Cutting the top individual income tax rate to 37%, which would help address top earners’ complaints about losing certain tax deductions, but could also damage claims by Trump and others that the measure is mostly aimed at middle-class relief.

  • Setting the corporate tax rate at 21%, instead of the 20% proposed in both the House and Senate bills. The current corporate rate, 35%, is the highest among industrialized economies. Trump had initially sought a 15% rate, then said he wouldn’t accept any rate higher than 20%. But earlier this month, he suggested he was open to a number as high as 22. Adopting the Senate’s general method of cutting tax rates for partnerships, limited liability companies and other so-called pass-through businesses, but revising the particulars. The Senate bill would create a 23% deduction for pass-through business income, but a potential compromise would cut that deduction to 20%. Combined with a lower individual income rate, the change would still provide roughly the same amount of relief for owners of the most lucrative pass-through businesses.

  • Capping the mortgage-interest deduction at loans of $750,000 or less. The House bill proposed a cap of $500,000. The Senate bill left the current $1 million cap in place.

Negotiations remained fluid Tuesday night, and details were subject to change. Final compromises may emerge Wednesday ahead of a planned public meeting of a joint House and Senate conference committee that’s charged with preparing the final, compromise legislation. 

“If everything works right,” the Senate would vote on the final package Monday, the House would vote Tuesday and Trump would sign the bill by Wednesday of next week, said House Majority Leader Kevin McCarthy of California.

Trump is scheduled to host members of the conference panel at the White House for lunch on Wednesday before the president’s speech, Trump spokeswoman Lindsay Walters said.

What to Watch on Wednesday

Trump’s lunch meeting with conference committee participants may shed light on the latest details. The House-Senate conference committee will hold its first and only public hearing at 2 p.m. The president’s speech in the grand foyer of the White House takes place at 3 p.m. Trump will highlight five American families to show how they would benefit from the tax overhaul. Sticking points that remain between the House and Senate tax bills include whether to retain or repeal the individual and corporate alternative minimum taxes and the estate tax, whether to preserve a deduction for large medical expenses and how to tax pass-through businesses. Resolutions could emerge prior to the open meeting.

Here’s What Happened on Tuesday

Democrat Doug Jones won the Alabama Senate race, an outcome that will reduce the GOP’s advantage in the chamber to just 51 seats once Jones will be sworn later this month or in early January. Republican leaders -- who need at least 50 votes to win passage -- say they’ll get their tax bill approved before Jones takes office. Republican Senator Marco Rubio of Florida criticized his party for considering a cut in the top individual tax rate to 37% as part of its tax-overhaul plan -- while setting the proposed corporate rate slightly higher than planned to cover the revenue loss. Rubio, along with Republican Senator Mike Lee of Utah, had proposed expanding the child tax credit earlier this month, and paying for it by setting the corporate rate at 20.94%.

-- Anna Edgerton, Sahil Kapur, Erik Wasson, Allyson Versprille, Laura Davison and Kaustuv Basu

--With assistance from Anna Edgerton, Sahil Kapur, Erik Wasson, Allyson Versprille, Laura Davison, Kaustuv Basu and Steven T. Dennis.

To contact Bloomberg News staff for this story: John Voskuhl in Washington at [email protected]

To contact the editors responsible for this story: John Voskuhl at [email protected]

Michael B. Marois

© 2017 Bloomberg L.P 

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