A 50 subject one dollar note sheet is inspected after receiving a serial number and the U.S. Treasury and U.S. Federal Reserve seals at the U.S. Bureau of Engraving and Printing in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)

GOP Eyes $750,000 Mortgage Cap, Lawmaker Says: Tax Debate Update

(Bloomberg) -- House and Senate Republicans are working this week on compromise tax-overhaul legislation in an effort to send it to President Donald Trump as soon as next week. Here are the latest developments, updated throughout the day:

MacArthur: GOP Plans $750,000 Mortgage Limit (5:36 p.m.)

House and Senate negotiators are planning to limit the deduction for mortgage interest to loans of $750,000 or less, according to Representative Tom MacArthur, a New Jersey Republican.

MacArthur said the $750,000 limit would be positive for his district compared to the House bill. He added that lawmakers are still discussing whether to allow a deduction for state and local income taxes as part of a proposed cap of $10,000 for property taxes. He also said he’s pushing to preserve a deduction for large medical expenses that the House bill called for eliminating.

Current law limits the mortgage deduction to loans of $1 million or less. The tax break is one of the sticking points House and Senate lawmakers have been trying to resolve this week. The House bill calls for slashing the deduction cap for new purchases of homes in half -- to loans of $500,000 or less. The Senate legislation preserved the current limit.

The deduction is a cherished tax break that benefits many upper-middle-income and wealthy families. Limiting it would help to generate revenue to offset other tax code changes.

“We all are still in intense discussions with our colleagues on the House side,” Senate Majority Leader Mitch McConnell said earlier Tuesday.

“We hope to wrap it up pretty soon,” said McConnell.

House Majority Leader Kevin McCarthy said later that “if everything works right" the Senate will vote on the tax bill Monday, the House will vote Tuesday and President Donald Trump will sign the legislation by Wednesday of next week. -- Erik Wasson, Laura Litvan and Anna Edgerton

GOP Is Said to Favor 37% Top Individual Rate (4:57 p.m.)

House and Senate negotiators are leaning toward setting a top individual rate of 37 percent, according to two people familiar with the negotiations. The people asked not to be named because the discussions are private.

The situation was fluid as negotiations continued Tuesday.

Lawmakers have been working to reconcile differences between the House and Senate tax bills. The House bill would keep the top individual rate at the current 39.6 percent level, but adjust it to apply to taxpayers earning more than $1 million a year. The Senate legislation lowers the rate to 38.5 percent for those earning more than $1 million

Republican tax negotiators are also pushing to set a deduction of 20 percent on business income for pass-through owners, according to the two people. That formula would follow the Senate provision for pass-through businesses such as partnerships, limited liability companies and sole proprietorships. But the Senate bill established a 23 percent deduction, after efforts by Senator Ron Johnson of Wisconsin and Steve Daines of Montana to make the provision more generous.

A 20 percent deduction with a 37 percent top individual rate would effectively give top-earning pass-through owners the same top rate as a 23 percent deduction with a 38.5 percent top rate -- roughly 29.6 percent.

“What they’re talking about, it works out for me,” Johnson told reporters Tuesday. “It’s a combination of other things.” -- Anna Edgerton, Sahil Kapur, Allyson Versprille and Laura Davison

GOP Is Said Leaning Toward 21% Corporate Rate (4:18 p.m.)

House and Senate negotiators are leaning toward setting a corporate rate of 21 percent, according to three people familiar with the negotiations. The people asked not to be named because the discussions are private.

Slashing the corporate rate from 35 percent has been a cornerstone of the GOP tax overhaul -- the House bill calls for a 20 percent rate effective in 2018, while the Senate legislation also calls for a 20 percent rate, but delays it from taking effect until Jan. 1, 2019.

President Donald Trump sparked discussions about a higher rate on Dec. 2 when he backed off his red line of a 20 percent rate in the final package. Negotiators have considered using what could be an extra $200 billion in revenue from setting a higher rate of 22 percent to make up for additional costs expected in the final package, such as expanding the state and local property tax exemption of up to $10,000 to include income taxes. A corporate rate of 21 percent is estimated to generate an additional $100 billion to offset other tax code changes.

Conservative activists have demanded that congressional Republicans negotiating a final tax package hold the line on a 20 percent corporate tax rate, and reject proposals to set it at 22 percent.

“We all are still in intense discussions with our colleagues on the House side,” Senate Majority Leader Mitch McConnell said earlier Tuesday.

“We hope to wrap it up pretty soon,” said McConnell. -- Anna Edgerton, Jennifer Jacobs and Sahil Kapur

Cornyn: Compromise May Come Later Tuesday (11:40 a.m.)

Senate Majority Whip John Cornyn of Texas said he thinks resolution of differences between the House and Senate tax bill could come as soon as Tuesday.

“I think it could and I hope it is,” Cornyn said. He added that Senate lawmakers have “ping ponged” offers back and forth with the House and they’re making good progress.

House Ways and Means Chairman Kevin Brady, who’s overseeing the House-Senate conference committee for tax negotiations, said the panel will likely come to a written agreement on final legislation by Friday.

“We are on track for this week,” Brady told reporters, referring to a so-called conference report.

Conference reports generally go point-by-point through areas of disagreement and say how each was resolved. For example, if the House position on a provision is the one they’ve agreed on, the report will say that with respect to that provision, the conferees propose that the Senate recede from its position and concur with the House’s position.

House Majority Leader Kevin McCarthy told GOP members the goal is for the House to vote on the tax bill next Tuesday, Dec. 19, according to Representative Lamar Smith of Texas.

Representative Tom Cole of Oklahoma said he heard that the goal was Tuesday, but there wasn’t an announcement about it directly.

“The time frame of a vote next week is very realistic,” said Representative Tom Reed of New York. -- Erik Wasson

Panel Set to Meet, But Real Work Is in Secret (7:34 a.m.)

Fewer than 10 working days remain before Republican congressional leaders say they’re planning to send a tax bill to President Donald Trump -- but details over how they’re resolving differences between the House and Senate tax bills remain closely guarded.

A “conference committee” of various House and Senate members is set to meet Wednesday, yet Senate GOP leaders made clear that the real work is happening behind closed doors.

“We’re sending proposals back and forth to the House so I can’t really give you a play-by-play,” said Senate Majority Whip John Cornyn of Texas. “It’s one of those situations where nothing’s resolved until everything’s resolved.”

Sticking points on major issues include where to set the corporate rate -- a cornerstone of the GOP tax overhaul -- how to rewrite international tax provisions, how to tax so-called pass-through businesses, whether to partially preserve state and local tax deductions for individuals and whether to end the estate tax.

When asked which decisions have been made, GOP Senator John Thune, the chamber’s No. 3 Republican, said: “Nothing, really.”

Still, Thune said, “the differences are narrowing.”

As House and Senate conferees meet Wednesday, Trump will give a “closing argument” speech on taxes. Details of the speech haven’t been released.

House and Senate leaders may be keeping decisions under wraps to damp lobbying -- or even to forestall demands from lawmakers. For example, if the corporate rate were set at 22 percent instead of 20 percent, lawmakers would likely push for their own favored measures to be included and paid for by the extra $200 billion in revenue that could result.

One trend has emerged: The conference is leaning toward the Senate version of international tax provisions, according to Thune. Even some House Republicans have called for the final bill to follow the Senate’s approach.

“Our approach was kind of preferred by a lot of” multinational businesses, Thune said.

Thune called the treatment of pass-throughs such as partnerships, limited liability companies and sole proprietorships the biggest challenge facing the conference committee, along with how to handle state and local tax deductions.

The House plan calls for lowering the top rate on pass-through business income to 25 percent, while excluding service companies such as accounting firms and law firms. The Senate bill would allow deductions of 23 percent of business income for pass-through owners making less than $250,000 if single or $500,000 for married couples filing jointly.

Whatever leaders decide, they’re under pressure to act quickly to meet their self-imposed Christmas deadline. Cornyn said leaders are shooting to vote on the final compromise bill by Monday or Tuesday of next week.

“We’re starting to run into some real timing issues because we need to get this done, get it scored” and make sure it complies with Senate budget rules, he said.

House Ways and Means Chairman Kevin Brady, who’s chairing the House-Senate conference committee, reiterated how the Senate budget rules are dictating everything the committee decides.

“There are discussions about every provision,” and whether it complies with the rules or not, Brady told reporters. -- Allyson Versprille, Kaustuv Basu and Sahil Kapur

What to Watch on Tuesday:

  • Alabama voters will decide whether Republican Roy Moore or Democrat Doug Jones will join the Senate -- presumably later this month, in the absence of any protracted challenges or other ballot issues. Either outcome might help spur Congress to try to stick to plans for voting on final legislation next week.
  • House Republican leaders hold a press conference at 10 a.m. to discuss tax efforts.
  • Developments on sticking points between the House and Senate tax bills, including the corporate rate, corporate AMT, estate tax, medical expense deductions and pass-through businesses.

Here’s What Happened on Monday:

  • The Treasury Department produced a one-page document that it described as an “analysis of growth and revenue estimates” based on the Senate tax bill, but economists quickly called the document a political statement, not a rigorous economic study. The report used Trump administration growth forecasts to assert that the Senate bill -- combined with other administration policies -- would produce $300 billion in additional revenue over 10 years. Other analyses have found the tax changes will increase deficits by as much as $1 trillion over the period.
  • A report released by Congress’s official scorekeeper, the Joint Committee on Taxation, found that the House tax bill would generate enough economic growth to lower its roughly $1.4 trillion price tag by about $483 billion over a decade -- meaning the tax plan would still cost about $1 trillion, even after accounting for macroeconomic effects.
  • A quintet of conservative activists held a conference call to demand that congressional Republicans hold the line on a 20 percent corporate tax rate, and reject proposals to set it at 22 percent.

To contact Bloomberg News staff for this story: Alexis Leondis in Washington at aleondis@bloomberg.net.

©2017 Bloomberg L.P.

With assistance from Alexis Leondis