GOP leaders reach tax deal, cutting corporate rate to 21% and top individual rate to 37%

Republican leaders on Wednesday agreed on a revised plan to cut taxes that would lower the corporate rate from 35% to 21% and drop the top individual rate for the richest Americans to 37%, according to GOP senators and others briefed on the deal.

The tentative accord marked a significant step in the Republican push to have a tax bill on President Trump’s desk by Christmas. Leaders did not release details of the compromise or the text of a final bill as negotiations continued.

“It’s critically important for Congress to quickly pass these historic tax cuts,” Trump said Wednesday, promising that Americans could begin to reap the benefits of the plan as early as February, if passed.

Critics, however, said the latest changes — particularly the lowering of the top individual rate from the current 39.6% — only reaffirmed several independent analyses that show the bulk of the savings from the Republican plan would go to businesses and the wealthy.

“How’s it going to help the middle class?” asked Sen. Charles E. Schumer, the Democratic leader in the Senate.

Even some Republicans privately said such a change was risky since Trump and GOP leaders have tried to portray their sweeping plan as aimed at ordinary Americans. One Republican senator called it a “bad idea.”

Still, Republicans were determined to push the proposal forward for votes, scheduled next week, as they rush to achieve a year-end accomplishment.

House and Senate lawmakers met Wednesday on a conference committee to combine the bills from their two chambers, even though the agreement had been reached ahead of time.

“They’re grasping for a political life preserver,” said Rep. Lloyd Doggett of Texas, a top Democrat on the House Ways and Means Committee. Democratic Rep. Sander M. Levin of Michigan called the session a “mockery.”

The last-minute reduction in the top individual rate was added to appeal to GOP donors and upper-income households — key Republican constituencies that had complained they might end up paying higher taxes in the earlier versions. The income level for that top rate is also expected to be increased from the current level, but a final figure was not released.

The original House plan retained the current 39.6% top rate while the Senate version lowered it to 38.5%.

The change drew sharp criticism from Democrats. “They’re still raising taxes on middle-class families,” said Sen. Maria Cantwell (D-Wash.).

Earlier versions would have lowered the corporate rate to 20%, a foundation of the Republican plan. But in reconciling the separate plans, leaders decided to nudge up the corporate rate in order to pay for benefits elsewhere, including the lower top rate. The 1-percentage-point increase would provide an extra $100 billion over 10 years.

The new 21% corporate rate would take effect starting in 2018, rather than in 2019, as in the Senate plan, and appeared to have support from conservative groups.

Because of Senate rules, the entire package may not add more than $1.5 trillion to the deficit over 10 years, forcing Republican negotiators to scramble to make trade-offs to stay under that cap.

Among other compromises, the final bill would allow mortgage interest deductions on loans up to $750,000, and deductions for state and local income or property taxes up to $10,000, according to those briefed on the plan.

Though the plan would increase the standard deduction for couples to $24,000, the caps on mortgage and state tax deductions would have a significant effect in high-cost states such as California, New York and New Jersey. It may not win back some Republican lawmakers from those states who opposed limiting the write-offs.

The plan also includes the Senate provision that would repeal the Obamacare requirement that Americans buy health insurance.

And it would include a measure to open a portion of the Arctic National Wildlife Refuge to oil and gas drilling, a provision important to Sen. Lisa Murkowski (R-Alaska).

“Not only will #TaxReform bring relief to middle-class Americans, it will also repeal Obamacare’s individual mandate tax and provide for our nation’s #energy future by further developing Alaska’s oil and gas potential,” tweeted Senate Majority Leader Mitch McConnell.

Regarding so-called pass-through entities, which include small businesses but also hedge funds and real estate ventures such as those held by Trump, negotiators agreed to allow them to deduct 20% of their income before paying taxes based on the individual rate.

That’s lower than the 23% income deduction that had been negotiated by Sen. Ron Johnson (R-Wis.) in exchange for his support. But he said Wednesday he was “encouraged” by the deal. “Obviously, I fought hard,” he said. “That pass-through rate remains competitive.”

The final measure would repeal the so-called alternative minimum tax for businesses, but retain it for individuals, albeit with a higher income threshold.

Sources said GOP leaders felt confident they had enough agreement from House and Senate Republicans to push the revisions forward.

Republicans generally are eager for a win, particularly after the failure to repeal Obamacare and the lack of any other significant legislative accomplishments this year, after taking control of both the White House and Congress.

But many lawmakers did not immediately commit their support. Both chambers need to pass the revised measure.

Rep. Lee Zeldin (R-N.Y.), who has fought to retain the current state and local tax deductions, worried the new approach still didn’t do enough for middle-income families. “Many middle-income taxpayers ... were promised a tax cut and won’t being seeing the tax relief that they’re expecting,” he said.

Though the plan would lower rates for many individual taxpayers, several studies have shown the GOP measure would result in tax increases for some, particularly low-income Americans. And the new lower rates for individuals are expected to expire in eight years, leading to tax increases for most Americans.

Corporate tax cuts would be permanent under the revised plan.

Sen. Susan Collins (R-Maine), another key Senate vote, was noncommittal Wednesday.

Democrats called for postponement of a vote on the bill until the new senator-elect from Alabama, Doug Jones, takes his seat. Jones’ victory will cut the GOP Senate majority to 51 to 49.

“We Senate Democrats are calling on Mitch McConnell to hit pause on his tax bill and not hold a final vote until Doug Jones is sworn into the Senate,” Schumer said.

Republicans, who are trying to pass the bill without Democrats, can afford to lose about 20 votes in the House and two in the Senate. If they don’t pass the bill before Jones takes his seat, that margin will drop to one.

lisa.mascaro@latimes.com

@LisaMascaro

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UPDATES:

3:05 p.m.: This article was updated with more analysis and details.

11:35 a.m.: This article was updated with additional reaction from lawmakers and details about the tax plan regarding pass-through businesses

10:15 a.m.: This article was updated with details about the corporate and individual rates.

This article was originally published at 9:15 a.m.