WASHINGTON - Congressional Republicans on Tuesday rushed toward a deal on a massive tax package that would reduce the top tax rate for wealthy Americans to 37 per cent and slash the corporate rate to a level slightly higher than what businesses and conservatives wanted.
In a flurry of last-minute changes that could profoundly affect the pocketbooks of millions of Americans, House and Senate negotiators agreed to expand a deduction for state and local taxes to allow individuals to deduct income taxes as well as property taxes. The deduction is valuable to residents in high-tax states like New York, New Jersey and California.
Negotiators also agreed to set the corporate income tax rate at 21 per cent, said two congressional aides who spoke on condition of anonymity because they were not authorized to publicly discuss private negotiations. Both the House bill and the Senate bill would have lowered the corporate rate from 35 per cent to 20 per cent.
Business and conservative groups lobbied hard for the 20 per cent corporate rate. Negotiators agreed to bump it up to 21 per cent to help offset revenue losses from other tax breaks, the aides said.
As the final parameters of the bill took shape, negotiators agreed to cut the top tax rate for individuals from 39.6 per cent to 37 per cent in a windfall for the richest Americans. The reduction is certain to provide ammunition for Democrats who complain that the tax package is a massive giveaway to corporations and the rich.
Under current law, the top tax rate applies to income above $470,000 for married couples, though lawmakers are completely reworking the tax brackets.
Among the other tax breaks, negotiators agreed to eliminate the alternative minimum tax for corporations, a big sticking point for the business community, the aides said. They also agreed to let homeowners deduct interest on the first $750,000 of a new mortgage, down from the current limit of $1 million.
The GOP goal is to deliver to President Donald Trump the first major rewrite of the U.S. tax system in more than 30 years, pushing into every corner of the American economy and society. Lawmakers hope to finalize a bill no later than Friday, vote next week and deliver the package of steep tax cuts for corporations and more modest cuts for families to the president's desk before Christmas.
Republican lawmakers were optimistic Tuesday that a deal was imminent. The total amount of tax breaks cannot exceed $1.5 trillion over the next decade, under budget rules adopted by both the House and Senate.
Lawmakers and aides were working to blend separate tax bills that were passed by the House and Senate.
The Senate's No. 2 Republican, Sen. John Cornyn of Texas, said an agreement in principle on a final package could come as soon as Tuesday. "I think it could and I hope it is," he said.
Lawmakers said workers could start seeing changes in the amount of taxes withheld from their paychecks early next year. However, taxpayers won't file their 2018 tax returns until the following year.
Both the House and Senate bills would scale back the deduction for state and local taxes, limiting it to $10,000 in property taxes. California Republicans have pushed to amend the bill to enable individuals to deduct state and local income taxes as well as property taxes. Rep. Pete Sessions, R-Texas, said there is an agreement on how to address the issue, though he wasn't specific.
"It's a huge issue in districts and there's an agreement about how they are going to approach it and I just want to see that issue taken care of," said Sessions, chairman of the House Rules Committee. "Once again, we're in negotiation, and sometimes when you negotiate you have to decide what you're willing to fight for and we need to fight for that."
The House bill would limit the mortgage interest deduction to the first $500,000 of a new mortgage, while the Senate bill would keep the current limit of $1 million. Two congressional aides said negotiators have agreed to split the difference.
The provision would not affect current mortgages.
The housing industry lobbied hard against changes to the deduction, arguing it would hurt home values.
For corporations, the House-passed bill would eliminate the alternative minimum tax, but the Senate bill would retain it. The tax was meant to ensure that corporations pay at least some tax.
Republican lawmakers from both the House and Senate said retaining the tax would limit the ability of corporations to take advantage of popular tax credits, including one for research and development.
House Majority Leader Kevin McCarthy, R-Calif., has come out in favour of repealing the corporate AMT, giving the proposal momentum.
Rep. Mark Meadows, R-N.C., said he talked with GOP leaders about setting the corporate tax rate at 21 per cent. Meadows, who chairs the conservative Freedom Caucus, said he prefers a 20 per cent corporate rate. When asked whether the higher rate is a deal-breaker, Meadows said it depends on what else is in the bill.
Trump will try on Wednesday to sell the American people on a GOP tax overhaul that is unpopular with many. His pitch: The plan will lift all economic boats, bringing a brighter future for taxpayers and their families, according to spokeswoman Lindsay Walters.
Both the House and Senate bills would cut taxes by about $1.5 trillion over the next decade while adding billions to the deficit.
Associated Press writer Alan Fram contributed to this report.