Leading Republicans are looking at scaling back some of the corporate tax cuts that they are trying to usher into law, two people involved in the tax negotiations said, convinced they need to find new revenue in order to make last-minute fixes to the giant package moving through Congress.
The House and Senate passed separate tax cut packages in recent weeks, and both bills would lower the corporate tax rate from 35 percent to 20 percent. But GOP negotiators are now openly discussing the possibility of moving that rate up to 22 percent in order to free up more revenue, people familiar with the discussions said. One of those people said the 22 percent rate is “seriously under discussion.”
The two people spoke on condition of anonymity because they are not authorized to discuss sensitive negotiations. No decisions have been made. The White House has been resistant to making this change, but President Trump said casually on Saturday morning that the 22 percent corporate rate might be necessary. Each percentage point that is added back to the corporate rate would free up around $100 billion in revenue over 10 years. Still, White House officials have tried to stress to Congress in the past two days that their strong preference is to keep the corporate rate at 20 percent.
Senate Finance Committee Chairman Orrin Hatch (R-Utah) said he too was resistent to raising the rate.
“Not as far as I’m concerned,” he said. “It’s still 20.”
The House and Senate must pass matching tax bills before President Trump can sign the package into law. But there are a number of changes that Republicans want to make that would make the package more costly, and the package cannot add more than $1.5 trillion to the debt over 10 years.
One of the changes they are looking at making would repeal, or at least severely scale back, an alternative-minimum tax for corporations that tries to limit the deductions and credits companies can take. Another major change that is getting growing attention would allow Americans to deduct up to $10,000 of state income tax or local property tax from their federal income. The House and Senate bills would only allow Americans to deduct the property tax component, but lawmakers are looking to give people more flexibility.
Another leading Finance Committee member, Sen. Pat Toomey (R-Penn.), cited both those issues in acknowledging that Republicans are looking for new revenue sources to address lingering problems.
“So we all understand there are some things that are going to have to change. So we’re going to have to figure out how to do that,” Toomey said. “But I’m not predicting that we’re going to go to a 22 percent corporate rate.”
The White House and Republican leaders have heard numerous complaints from wealthy GOP donors in California and New York who believe that their taxes could actually go up under the new regime because of the limitations on deductions. They are trying to make changes before the package is completed that would address these concerns.
Trump referenced these complaints on Wednesday when he said said Wednesday that the final GOP tax bill should take care of the “tiny little sliver” of people who don’t benefit under the legislation as written.
The president’s comments came as House and Senate Republicans worked to iron out differences between the tax bills passed by each chamber, with the goal of sending compromise legislation to Trump before Christmas.
Senate Majority Leader Mitch McConnell (R-Ky.) endorsed one change under consideration, which would allow a $10,000 property tax deduction in the bill to apply to state income taxes as well. “That sounds like a kind of reasonable idea,” McConnell told radio host Hugh Hewitt on Wednesday.
There is believed to be more than a “tiny little sliver” of Americans who will miss out on benefits from the GOP legislation, according to nonpartisan analyses that show the bills skew toward corporations and the wealthy despite their billing as a middle-class tax cut.
“I think we’re going to have a fantastic tax bill. There are very, very few people that aren’t benefiting by it, but there’s that tiny little sliver,” Trump said. “And we’re going to try to take care of even that very small group of people that just through circumstances maybe don’t get the full benefit of what we’re doing. But the middle class gets a tremendous benefit and business, which is jobs, gets a tremendous benefit.”
According to an analysis by the nonpartisan Tax Policy Center, slightly more than 24 percent of taxpayers would see a tax increase by 2027 under the version of the bill passed by the House.
Under the Senate-passed bill, 48 percent of taxpayers would pay more by then, largely because of tax breaks that that are set to expire in five years. Republicans insist those tax would actually be extended by a future Congress.
Both pieces of legislation feature a massive corporate tax cut at their center and add more than $1 trillion to the deficit, but there are a host of smaller differences that lawmakers are currently working through. These include the effective date of the corporate tax and handling of the alternative minimum tax for individuals and corporations.
But the centerpiece of the tax bill is the corporate tax cut, which the White House has said will help spur economic growth, hiring, investment, and boost wages. Several Republicans complained last week that GOP leaders had become obsessed with holding the line on the 20 percent rate even if it meant bypassing tax cuts for families, but GOP leaders were able to steer the bill through both chambers of Congress with this level intact.
GOP leaders hope to settle the issue soon.
The Senate voted Wednesday 51 to 47 to formally enter conference negotiations with the House on the legislation, a procedural step needed to move the process forward.
Ahead of the vote Democrats and Republicans delivered floor speeches alternately excoriating the legislation or praising it. Democrats are unanimously opposed to the bill but powerless to stop it since Republicans are employing special rules that allow passage with a simple majority instead of the 60 votes normally required in the 100-seat Senate.
Trump also declared that “I cannot wait to sign these giant tax cuts,” inaccurately asserting, as he has done repeatedly, that they would be the largest tax cuts the nation has ever seen.
And he predicted that gross domestic product would begin to grow by as much as 6 percent, a figure that greatly exceeds — in many cases even doubles — the predictions of mainstream economists.