GOP eyes raising corporate rate to 21 percent, lowering top individual tax rate

Republican negotiators have reached a tentative agreement to raise the corporate rate in their joint House-Senate tax bill from 20 to 21 percent as they seek revenue to pay for a variety of significant changes that could be sold as tax relief for individuals.

The higher corporate rate could pay for a reduction in the top individual rate, which Republicans are talking about lowering to 37 percent — beneath the current top rate of 39.6 percent and lower than the rates set by bills passed by the House and Senate this fall.

{mosads}It could also pay for keeping more deductions for taxpayers, particularly in high-tax states that would be severely impacted by proposals to eliminate the state and local tax deduction or a cap on the property tax deduction.

Even President Trump has reportedly heard complaints from friends in New York about cuts in deductions that were approved in the initial House and Senate bills.

“The House has a lot of asks to pay for,” said a Republican source briefed on the talks, referring to House lawmakers from high-tax states, such as New York and California, who worry the bill could hit their constituents.

Two GOP sources told The Hill that negotiators have tentatively agreed to the corporate rate of 21 percent — still a 14-point reduction from the current 35 percent rate.

Conservatives have fought to keep the 20 percent rate, and the hike is likely to encounter some resistance. One conferee noted that there has been no formal vote for conferees to sign off on any provisions in a final bill.

“We have not had a vote on any of these policies,” said Sen. Tim Scott (R-S.C.).

While President Trump has expressed openness to raising the corporate rate higher than the 20 percent he has touted, many Republicans do not want to move from that threshold.

“I’d rather it stay where it is,” said Sen. Dean Heller (R-Nev.), one of the Senate’s most vulnerable incumbents, when asked about sliding the proposed corporate rate from 20 to 21 percent.

Scott also said he would prefer to delay the implementation of the corporate rate cut to “preserve” the 20-percent rate.

Republicans have to find a way to pay for some of the other changes they are making, however.

To pass the tax-cut bill through the Senate under budget rules that prevent Democrats from launching a filibuster, the bill’s cost cannot exceed $1.5 trillion over 10 years.

Lowering the top individual rate would cost money while fueling criticism from Democrats that the bill gives too much tax relief to high-income earners.

“That would be gold for us,” said a Senate Democratic aide.

But it would solve several problems, such as providing more help to the owners of pass-through businesses and reducing the disparity between those entities and corporations.

It could also help people living in high-tax states deal with the loss of higher deductions for local, state and property taxes.

The tax-cut bill approved by the House keeps the top rate of 39.6 percent. The Senate-passed bill would reduce it to 38.5 percent.

“We are very close to having people on the same page,” said Scott, a member of the Senate-House conference committee.

Scott said “there is discussion” about setting the top individual rate at 37 percent, noting “it helps business and it’s also an additive as it relates to SALT,” referring to proposals to limit the deductibility of state and local taxes.

Lowering the top individual rate would appeal to Senate and House conservatives who would be disappointed by shrinking the corporate tax cut.

But the idea is not sitting well with all Senate Republicans.

“This is not the Senate bill,” said one Republican senator who confirmed the discussion of the 37 percent rate and expressed concern.  

Republicans control 52 seats in the Senate and cannot afford more than two defections from their conference and still pass the bill. Democrats are expected to oppose it unanimously.

There’s also strong support for allowing residents in New York, California and other high-tax states to deduct their state and local income taxes or their property taxes up to a $10,000 cap.

Giving taxpayers greater flexibility to deduct the state and local taxes is an idea promoted by Majority Leader Kevin McCarthy (R-Calif.), who is No. 2 in GOP leadership.

“I would like to expand that a little further” to include deductions for property or income taxes, McCarthy said in an interview for The Hill’s “Power Politics” podcast.

Sen. Susan Collins (R-Maine), a pivotal swing vote, has advocated for setting the corporate rate at 21 percent instead of 20 percent. She says business leaders have told her it would not affect investment significantly.

Collins, who supports keeping the top individual tax rate at 39.6 percent for families earning more than $1 million, declined to comment on the prospect of lowering it to 37 percent.

Negotiators have also agreed to adopt language included in the Senate bill that would repeal the federal mandate requiring people to buy health insurance, a core part of ObamaCare

Negotiators are splitting the difference between the Senate and House bills over what to do about the mortgage interest deduction.

The Senate bill would keep the threshold at $1 million while the House bill would cap it at $500,000. The emerging compromise is to limit it at $750,000, allowing House and Senate conferees to meet halfway.

The developments come as top Senate Republicans signaled Tuesday that members of the House-Senate conference committee are on a cusp of locking down a final deal on their long-awaited goal of tax reform.

Republican and Democratic members of the Senate-House conference committee will meet at 2 p.m. Wednesday to discuss the bill.

They are not expected to have legislative text to mark up. Instead, the session will be devoted to making three-minute opening statements and asking questions of Tom Barthold, chief of staff of the Joint Committee on Taxation, about the bill’s costs.

This story was updated at 6:11 p.m.