WASHINGTON (Reuters) – Congressional Republicans reached a deal on final tax legislation on Wednesday, clearing the way for final votes next week on a package that would slash the U.S. corporate tax rate to 21 percent and cut taxes for wealthy Americans.
Under an agreement between the House of Representatives and the Senate, the corporate tax would be one percentage point higher than the 20-percent rate earlier proposed, but still far below the present headline rate of 35 percent, a deep tax reduction that corporations have sought for years.
As they finalized the biggest tax overhaul in 30 years, Republicans wavered for weeks on whether to slash the top income tax rate for the wealthy. But in the end, they agreed to cut it to 37 percent from the current 39.6 percent. This was despite criticism from Democrats that the Republican plan tilts toward the rich and corporations, offering little to the middle class.
“I think we’ve got a pretty good deal,” Senate Finance Committee Chairman Orrin Hatch told reporters.
The emerging agreement would repeal the corporate alternative minimum tax, set up to ensure profitable companies pay some federal tax, and expand a proposed $10,000 cap for state and local property tax deductions to also include income tax, lawmakers and sources familiar with the negotiations said.
The agreement would also gut part of the Obamacare health law by repealing a federal fine on individuals who fail to obtain health insurance, while authorizing oil drilling in Alaska’s Arctic National Wildlife Refuge. Both add-on measures were part of nailing down sufficient votes for passage.
Further details of the agreed legislation were not yet available. A final bill could be formally unveiled as early as Friday, with decisive votes coming next week in both chambers.
Moving the corporate tax target rate to 21 percent from 20 percent gave tax writers enough revenue to make the tax cuts immediate, Republican Senator Ron Johnson told reporters.
In a White House speech, Trump said the Internal Revenue Service has advised that if he signs the bill into law before Christmas, the tax cuts would take effect in February.
“If Congress sends me a bill before Christmas, the IRS … has just confirmed that Americans will see lower taxes and bigger paychecks beginning in February,” he said.
The IRS had no immediate comment.
A Trump administration official said the IRS will have to readjust its paycheck tax withholding tables for employers and that new withholding levels would take effect in February.
Under the bill, tax returns being filed next year for 2017 would not be affected, but returns filed in 2019 for 2018 would.
Trump appeared in the White House with several middle-class families that he said would benefit from the tax bill.
The Joint Committee on Taxation and the Congressional Budget Office, both nonpartisan research units of Congress, have forecast that rich taxpayers and businesses would gain disproportionately from the debt-financed Republican proposals.
As drafted, the Republican plan was expected to add as much as $1.5 trillion to the $20-trillion national debt in 10 years. With that in view, Republicans have been urgently trying to finalize details of their package without increasing its estimated impact on the federal deficit and the debt.
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 .DJIclosed up 0.3 percent at 24,505.
“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.
Despite expressions of confidence about passage by party leaders, at least three Senate Republicans still seemed to be undecided, including Arizona’s Jeff Flake, who was not specific about his hesitation in brief hallway remarks to reporters.
Bob Corker, a fiscal hawk, said he was undecided on whether to support the bill. He told reporters: “My deficit concerns have not been alleviated.”
Susan Collins, who helped sink her fellow Republicans’ efforts to dismantle former Democratic President Barack Obama’s healthcare law earlier this year, said she would not make a final decision on which way to vote “until I see the bill.”
TRUMP ON CORPORATE RATE
Asked 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 arrives in Washington the Republicans’ already slim Senate majority will narrow to 51-49.
Fast action by Republicans on taxes would prevent Jones from upsetting expected vote tallies 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.
“Who would’ve thought they could have made the bill even less favorable to the middle class and more slanted towards the wealthy?” Schumer told a press conference.
If Trump can sign the bill before year’s end, 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.