Nation/World

Republicans reach compromise on tax plan, expanding tax cuts for wealthy

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.

Sen. John Cornyn of Texas, the majority whip, told reporters that Republicans will be briefed on the deal Wednesday, and that he is confident it will be approved next week.

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.

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 AMT 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 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.

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.

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.

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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.

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," Trump said, of the tax bill. He added later "This is the biggest thing that we've worked on."

Trump also indicated he would accept a reduction in the corporate tax rate to 21 percent from 35 percent. Until recently, Trump had insisted on a corporate rate no higher than 20 percent.

It is not clear if Republican senators will roundly endorse the deal, which would allow provisions that Sens. Susan Collins of Maine and Marco Rubio of Florida had raised concerns about earlier this week. Collins has said she's not in favor of a lower individual rate and Rubio has pushed for a more generous child tax credit.

The Senate bill narrowly passed 51-49, with Sen. Bob Corker, R-Tenn., voting against the legislation, and other lawmakers, such as Collins, only getting on board once certain changes were made, such as expanding the medical expense deduction.

The agreement was finalized 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. 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.

Sen. Ron Wyden of Oregon, the top Democrat on the finance committee, tweeted Wednesday morning that Republican leaders should delay the tax process until Jones takes his seat.

Republican leaders gave no indication on Wednesday that they will delay the bill.

Trump was preparing to deliver what administration officials called a "closing argument" for the tax bill on Wednesday. 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.

Trump will also have lunch with eight Senate Republicans on the conference committee, including Sen. 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.

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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.

Alan Rappeport and Thomas Kaplan contributed reporting.

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