With Republican leaders still frantically scrambling to find last-minute fixes in their tax-reform plan that will help win over moderate Republicans and deficit hawks who could create problems during the reconciliation process, the Washington Post is reporting that Republican leaders are considering a deal to roll back the corporate rate to 22%.
Rumors that Republicans would be forced to accept a higher corporate rate to help offset bigger cuts for small businesses have circulated for weeks. But with Republicans hoping to win approval this week in the senate to begin the reconciliation process, time is quickly running out for Republicans to deliver a tax reform bill to Trump’s desk by year’s end.
As WaPo explains, the House and Senate passed separate tax cut packages in recent weeks, and both bills would lower the corporate tax rate from 35% to 20%. But GOP negotiators are now openly discussing the possibility of moving that rate up to 22% 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.”
As is the case with most WaPo and New York Times exclusives, the information comes with the caveat that Republican strategy can change: in other words, this decision is not yet final. The White House has until recently been resistant to making this change, but President Trump said casually on Saturday morning that the 22% 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.
Before tax reform can reach Trump’s desk, the House and Senate must pass matching bills following a process called reconciliation.
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 according to Congressional rules.
Republican leaders have faced resistance from blue-state Republicans who fear the Republican plan would raise taxes on any of their residents by largely eliminating the SALT deduction. Another sticking point is the repeal of the corporate alternative minimum tax.
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.
Trump referenced these complaints on Wednesday when he 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.
While both the Senate and House versions of the bill would slash taxes for many, according to an analysis by the nonpartisan Tax Policy Center, slightly more than 24% taxpayers would see a tax increase by 2027 under the version of the bill passed by the House.
Under the Senate-passed bill, 48% of taxpayers would pay more by then, largely because of tax breaks that that are set to expire in five years. Republicans insist those taxes would probably 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.
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.
For what it’s worth, Bridgewater Associates Ray Dalio appears to agree with blue-state Republicans, explaining in an essay published on his LinkedIn page that taxes would likely rise in blue states, but that overall, the bill would be “good for business.”