Congress Talks Tax Deal as Trump Signals Corporate Rate Retreat
(Bloomberg) -- House and Senate lawmakers say they’ll begin working Monday on compromise tax-overhaul legislation -- just a couple days after President Donald Trump introduced uncertainty over a provision that could mean a difference of about $200 billion over 10 years.
On Saturday, Trump said the corporate tax rate -- which would be cut to 20 percent from 35 percent in both the House and Senate bills -- “could be 22 (percent) when” a final bill emerges.
Trump’s comments -- made quickly to reporters as he left the White House Saturday for a political fundraising trip -- imposed an air of unpredictability over congressional negotiations that are due to begin with the formation of a House-Senate “conference committee” on Monday. Lawmakers will have significant differences to hammer out. But if all goes well, an agreed upon bill could be on Trump’s desk “within 10 days,” Republican Senator David Perdue of Georgia said Sunday on Fox’s “Sunday Morning Futures.”
Trump and his advisers have been adamant about setting the corporate rate at 20 percent -- after they capitulated on Trump’s previous call for setting the rate at 15 percent. On Sunday, a top White House aide sought to downplay Trump’s weekend comments.
“I don’t think it’s a change,” White House Budget Director Mick Mulvaney said on CBS’s “Face the Nation.”
Experts have estimated that a 22 percent corporate income tax would raise roughly $200 billion more over 10 years than would a 20 percent rate. Nonetheless, Mulvaney said: “If something small happens in conference that gets us across the finish line, we’ll look at it on a case-by-case basis, but I don’t think you’re seeing any significant change in our position on the corporate tax rate.”
Early Morning Vote
Just before 2 a.m. Saturday, the Senate voted 51-49 to approve a 479-page bill that would cut the corporate tax rate to 20 percent from 35 percent in 2019, and would provide temporary tax cuts for individuals that expire in 2026.
Last-minute changes to the legislation -- including a provision that would leave the so-called alternative minimum tax in place for corporations and retain a modified version of that tax for individuals -- left many tax experts scrambling over the weekend to understand the revisions’ impact.
An expanded tax break for owners of partnerships, limited liability companies and other so-called “pass-through” businesses could have the effect of chopping the tax rate by about 10 percentage points for some of the highest earners in the U.S.
The measure would provide a 23 percent deduction on business income -- subject to various limitations -- and would reduce federal revenue by an estimated $476.2 billion over the next decade. The House bill provides a different method for cutting taxes for pass-throughs that would reduce revenue by an estimated $596.6 billion over the decade.
Some experts have said the breaks would apply to hundreds of companies in which Trump disclosed ownership interests in his most recent financial disclosure. Trump has said more than once that he’d pay more taxes under the legislation that’s being considered, but the White House has provided no proof of that claim. Trump has departed from roughly 40 years of tradition by refusing to release his tax returns, saying he won’t do so because he’s under audit.
An amendment to the Senate measure shepherded by Senate Majority Whip John Cornyn of Texas would also allow for some income from oil and gas partnerships to qualify for the pass-through break. Pass-through businesses, as the name implies, don’t pay taxes themselves, but pass their income to their owners, who -- under current law -- pay tax at their individual income-tax rate.
Boosting the breaks available to investors in partnerships and similar closely-held businesses --a revision demanded by GOP senators Ron Johnson of Wisconsin and Steve Daines of Montana -- may complicate Republican efforts to describe the plan as a tax break for working Americans.
This much is already clear: The Senate’s individual tax cuts would expire in 2026 -- effectively setting up a slew of future tax increases on individuals. Senate tax writers inserted the time limit to comply with arcane budget rules that prohibit their legislation from adding to federal deficits outside a 10-year budget window.
Limiting those breaks -- while changing the corporate tax rate permanently -- has the effect of extending only temporary benefits to wage earners and long-term benefits to investors, based on various analyses of the plan. The nonpartisan Congressional Research Service analyzed an earlier version of the Senate plan and found that Americans making between $500,000 and $1 million a year would see the biggest percentage increases in their after-tax income under its provisions.
Another key difference between the Senate and House bills centers on the timing of the corporate tax-rate cut: The House’s version would begin in 2018, the Senate’s a year later. Because Republicans have only a narrow majority in the Senate -- where they hold 52 of the 100 seats -- any compromise is much more likely to resemble their approach than the House’s.
Informal conversations among congressional leaders about how to reconcile the House and Senate bills were planned to begin over the weekend, according to a senior Republican aide, who asked not to be named in order to discuss the plans.
The House will vote on a motion to go to a conference committee Monday evening, the aide said -- and its delegates to the committee should be named by later that night. The House delegates will include members of the tax-writing Ways and Means Committee and the Natural Resources Committee, according to the aide.
Plans in the Senate were less clear -- though the chamber is scheduled to resume business at about 3 p.m Monday.
Despite Trump’s remarks regarding the possibility of a 22 percent corporate rate, both sides have signaled they’re committed to the 20 percent figure.
Representative Mark Meadows, a North Carolina Republican who chairs the conservative House Freedom Caucus, called the idea of a 22 percent rate a “nonstarter” last week.
And before approving the Senate bill early Saturday, lawmakers rejected an amendment offered by GOP senators Marco Rubio and Mike Lee that would have set a corporate tax rate of 20.94 percent to help pay for expanding the child tax credit.
Rubio had described that rejected change as a way to help “teachers, firefighters, welders, construction workers -- the working class.” A White House spokesman said as recently as Friday that Trump didn’t support the Rubio-Lee amendment.
To contact Bloomberg News for this story: John Voskuhl in Washington at email@example.com.
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With assistance from John Voskuhl