Congressional Republicans have reached a deal on final tax legislation, the U.S. Senate’s top Republican tax writer said on Wednesday, with President Donald Trump saying he would back a sharply lowered corporate tax rate of 21 percent.
The 21 percent rate would be slightly above a proposed 20-percent rate that Trump supported earlier, but still far below the present headline rate of 35 percent, a deep tax cut that U.S. corporations have been seeking for years.
As they finalized the biggest tax overhaul in 30 years, Republicans for weeks wavered on slashing the top income tax rate for the rich, but finally agreed to do it, despite Democrats’ criticism that the bill favors the wealthy and corporations, while offering little to the middle class.
The emerging congressional agreement includes a 21-percent corporate rate; a top individual income tax rate of 37 percent, down from the current 39.6 percent level; and a $10,000 cap on deducting state and local property or income tax payments, said sources familiar with the negotiations.
Although the president said a “final number” on the corporate rate had not been set, the Senate and House of Representatives were hurtling toward an agreement that would clear the way for final votes in both chambers next week.
“I think we’ve got a pretty good deal,” Senate Finance Committee Chairman Orrin Hatch told reporters as he prepared to join other Republicans for lunch with Trump.
Hatch’s remarks appeared to reinforce expectations that a final vote could begin in the Senate as early as Monday. Further details of the agreed legislation were not yet available.
Republicans have been urgently trying to finalize details of their bill without increasing its estimated impact on the federal deficit. As drafted, it is expected to add as much as $1.5 trillion to the $20-trillion national debt over 10 years.
At a tax event held by Democrats, Moody’s Analytics Chief Economist Mark Zandi said the Republican bill, if enacted, would cause interest rates to rise, meaning the benefits of a lower corporate tax rate would be “completely washed out.”
Stock markets have rallied for months in anticipation of lower taxes for businesses. The benchmark Dow Jones Industrial Average Index was up 0.5 percent at 24,628 in afternoon trading.
“The market is trading at all-time highs, its run-up has been really in anticipation of tax reform,” said Ken Polcari, NYSE floor division director at O‘Neil Securities in New York.
Republican Senator Bob Corker, a fiscal hawk, on Wednesday said he was undecided on whether to support the bill. He told reporters: “My deficit concerns have not been alleviated.”
Asked at the lunch by reporters if he would sign a bill with a 21-percent corporate tax rate, Trump said: “I would ... It’s very important for the country to get a vote next week.”
With their defeat on Tuesday in an Alabama special Senate election, Republicans were under increased pressure to complete their tax overhaul before Christmas and before a new Democratic Alabama senator can be formally seated in the Senate.
Democrat Doug Jones’ capture of the Alabama Senate seat came hours ahead of the final tax agreement being hammered out.
When Jones, who upset Republican Roy Moore in the deeply conservative Southern state, arrives in Washington, the Republicans’ already slim Senate majority will narrow to 51-49, further complicating Trump’s legislative agenda.
Fast action by Republicans on taxes would prevent Jones from upsetting the expected vote tallies on this bill since he will not likely be seated until late December or early January.
Senate Democratic Leader Chuck Schumer called on Republicans to delay a vote on overhauling the tax code for the first time in 30 years until Jones can be seated, but that was unlikely.
A one-percentage-point change in the corporate rate would give tax writers about $100 billion of revenues over a decade that could be used in many ways. One could be to repeal a federal tax on inheritances paid by wealthy Americans. Another might be to end the corporate alternative minimum tax.
Some Republicans also wanted a slightly higher corporate rate to pay for a higher child tax credit. Lawmakers had also debated capping a popular individual deduction for mortgage interest at $750,000 in home loan value, instead of $1 million.
If Trump can sign a tax bill by the end of the year, it would be the first major legislative victory for him and the Republicans since they took control of the White House and both chambers of Congress in January.
After his lunch with Republican lawmakers, Trump will speak on tax legislation alongside five middle-class families who would benefit, senior administration officials said.
He wants to try to counter claims that the Republican tax plan would largely benefit corporations and the wealthy.
The nonpartisan Joint Committee on Taxation and Congressional Budget Office have both said wealthier taxpayers would gain disproportionately from the Republican proposals.
Additional reporting by Jeff Mason, Steve Holland, Susan Cornwell, Richard Cowan, Makini Brice and Doina Chiacu; Editing by Kevin Drawbaugh and James Dalgleish.