Tax debate update: GOP eyes cut for top end, 21% corporate rate

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

GOP Eyes Cut for Top End, 21% Corporate Rate

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 percent—down from the current 39.6 percent and lower than the Senate’s plan to set the top rate at 38.5 percent. 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 percent, 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 percent, instead of the 20 percent proposed in both the House and Senate bills. The current corporate rate, 35 percent, is the highest among industrialized economies. Trump had initially sought a 15 percent rate, then said he wouldn’t accept any rate higher than 20 percent. 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 percent deduction for pass-through business income, but a potential compromise would cut that deduction to 20 percent. 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 percent 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 percent. For more details, click here.

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

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Andrew Harrer/Bloomberg

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