Republicans near agreement on higher corporate tax rate, lower rate on wealthiest

PHOTOGRAPHER: The New York Times

House Speaker Paul Ryan (R-Wis.) speaks at a news conference on Capitol Hill in Washington on Dec. 12, 2017.

WASHINGTON — Republican lawmakers, scrambling to reach agreement on a final tax bill that they hope to pass next week, are coalescing around a plan that would slightly raise the proposed corporate tax rate, lower the top rate on the richest Americans and scale back the existing mortgage interest deduction.

In a frenzy of last-minute negotiations, Republicans drew closer to agreement on nudging the corporate tax rate to 21 percent, up from the 20 percent in the bills that passed the House and Senate but still lower than the current 35 percent corporate rate, according to a lawmaker and a person briefed on the discussions.

They are also considering lowering the top individual tax rate to 37 percent, from the current top rate of 39.6 percent, to assuage concerns from some wealthy taxpayers who fear that their tax bills could rise under the current legislation, which eliminates a host of individual tax breaks.

Another closely watched change centers on the ability to deduct the interest on mortgage debt. Lawmakers are discussing limiting the deduction to mortgage debt of up to $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, according to Sen. John Kennedy, R-La.

The negotiations come as lawmakers in the House and Senate seek to align their tax bills, which differ in significant ways and must be reconciled to ensure enough Republican support to pass along party lines.

Under Senate rules, the final bill can add no more than $1.5 trillion to federal budget deficits over a decade, a restriction that has led to a frantic game of budget chess as lawmakers look for ways to pay for the changes they are considering. Lowering the top individual tax rate to 37 percent, for instance, will result in less tax revenue for the Treasury Department. Raising the corporate tax rate to 21 percent will help bring in a bit more money to help lawmakers stay in that $1.5 trillion box.

Sen. John Cornyn of Texas, the No. 2 Senate Republican, said that House and Senate negotiators were making progress in their effort to agree on a final tax bill and that a deal could be reached shortly.

“We don’t have it right this minute, but we’re getting closer,” Cornyn said shortly before lunchtime. “We’ve Ping-Ponged a number of offers and counteroffers back and forth.”

In a sign of how difficult it is to build consensus for such a fast-moving bill, Sen. Susan Collins, R-Maine, said Tuesday that she did not like the idea of lowering the top individual rate, which is currently 38.5 percent in the Senate bill and 39.6 percent in the House version.

“I don’t think lowering the top rate is a good idea,” Collins said, explaining that she preferred the House version that did not lower the top tax rate. “I had hoped that the House position, the original House position, would prevail.”

However, Collins, who negotiated several changes to the final version of the Senate tax bill in exchange for her vote, would not say whether the adjustment to the top rate was a deal breaker.

“I’m going to wait and look at the entire conference report and what all of the provisions are,” Collins said. “There are a lot of rumors flying around.”

The bipartisan conference committee is scheduled to hold its one public meeting Wednesday afternoon. While that meeting will give Republicans and Democrats a final chance to publicly debate the merits of a $1.5 trillion tax cut, it is not expected to alter the trajectory of the bill or its details.

A spokeswoman for the Senate Finance Committee stressed late Tuesday afternoon that negotiations were still continuing, but many lobbyists said they expected the discussions to be complete before the public meeting on Wednesday begins.

Also on Wednesday, President Donald Trump plans to deliver at the White House what administration officials called a “closing argument” for the tax bill. And in an expression of optimism about the bill’s fate, Speaker Paul Ryan tweeted a poem on Tuesday titled “’Twas the Night Before Taxmas.”

Republicans are speeding ahead with the legislation despite criticism from Democrats that the bill hurts the middle class, benefits the rich and creates a raft of new loopholes that corporations and wealthy Americans can exploit. A special election for the Senate in Alabama has added to the pressure, as polls show that Doug Jones, a Democrat, has a chance to beat Roy Moore, a Republican judge who has been accused of child molestation. If Democrats are able to flip the seat, the narrow Republican majority in the Senate would fall to 51-49.

House and Senate Republicans have been working behind closed doors to hash out the final details of the tax plan, and they hope to hold a vote next week. Republican leaders want to complete a consensus bill in the next few days, and release its text Friday. If all goes according to plan, the Senate could take the bill up Monday and the House could follow on Tuesday or Wednesday.

On Tuesday, speculation on the Capitol swirled over which measures in the House and Senate tax bills would survive, be tweaked or be cut. Vice President Mike Pence huddled with Rep. Kevin Brady, R-Texas, the chairman of the Ways and Means committee, and joined Senate Republicans for lunch to discuss the remaining details of the tax plan.

The big sticking points that remain include whether to scrap or keep the corporate alternative minimum tax and the estate tax for individuals, and how low to set the corporate tax rate.

“Certainly the president indicated he would be willing to go up a bit, and there’s been some other concerns,” Sen. Bill Cassidy, R-La., said of raising the corporate tax rate to pay for other fixes in the bill. “Everything’s a little bit in flux.”

Among the most politically sensitive issues lingering is how to treat the state and local tax deduction, known as SALT, which is capped at $10,000 in property taxes in the House and Senate bills. Lawmakers have been working through possible compromises that would let people continue to deduct a certain amount of property or income taxes, but Republicans still run the risk of raising taxes on broad portions of middle-income constituents. Scaling back the SALT deduction appears to be a risk some are willing to take.

“Will there be some outliers who pay more in taxes? Yes,” Sen. Patrick Toomey, R-Pa., said Tuesday on CNBC. “There are some people who will pay more because they live in very high-tax jurisdictions.”

However, Rep. Darrell Issa, R-Calif., called on members of the conference committee to rethink eliminating the state and local tax deduction as they craft a final bill.

“Among the plan’s deficiencies is the elimination of the state and local tax deduction (SALT), which since the advent of our federal income tax has prevented the double taxation of Americans’ income and allowed states to operate as laboratories of experiment as our founders intended,” Issa wrote in a letter to the committee members and congressional leaders.

This week, several independent “dynamic” scores of the tax bills, which include the potential revenue-raising effects of economic growth, found that the proposed legislation would still add $1 trillion to the deficit after a decade.

The Treasury Department released a one-page study Monday that showed the tax plan more than paying for itself, but only if economic growth averages 2.9 percent a year over the next 10 years and if other economic policies proposed by the Trump administration are enacted. Most mainstream economists say they believe that such a high rate of economic growth is not possible.

While many tax experts criticized the report as unrealistic, Ryan praised the Treasury analysis on Tuesday.

“I think that estimate makes a lot of sense,” Ryan said, arguing that the economic models used by the nonpartisan Joint Committee on Taxation were less reflective of reality.

Democrats and progressives have been assailing Republicans for recklessly adding to the debt and giving big tax breaks to the rich.

“I would hope my Republican colleagues are taking a look at how the American people feel about this disastrous tax bill,” said Sen. Bernie Sanders, I-Vt., referring to polling that shows the tax bill as unpopular among the general public. “I hope that they understand that is not what the American people want.”