Senior White House and congressional officials are thinking about ways to make tax reform less generous to the wealthy and are considering a smaller corporate tax cut, people familiar with the negotiations said Tuesday.
Removing some benefits for the rich and backing off a proposed 15 percent corporate tax rate would help Republicans in two ways: by broadening the political appeal of tax reform and reducing its cost.
But stark differences remain among the “Big Six” negotiators over numerous details, including the total size of a tax package. In the Senate, two key Republican senators tentatively agreed Tuesday on the scope of tax cuts – which could total more than $1 trillion — for the chamber’s budget resolution.
The flurry of activity came as the Big Six prepared to make a statement next week on the status of their talks. Two of the negotiators – Treasury Secretary Steven Mnuchin and House Ways and Means Committee Chairman Kevin Brady – have made conflicting statements about how much detail to expect.
Officials close to the talks cautioned that discussions over exactly what to say about the tax overhaul effort — and when to say it — remain highly fluid and could change multiple times in the days ahead.
In a sign that the Big Six may take a major change in direction, they’ve begun rethinking their plans to slash taxes on the rich. (In addition to Mnuchin and Brady, the group includes House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, Senate Finance Chairman Orrin Hatch, and National Economic Council Director Gary Cohn.)
Hatch said Tuesday that lawmakers are not interested in “cutting taxes very much for the wealthy.”
“I think they want to do a middle-class tax cut — at least that is what most everybody has said,” the Utah Republican said. “I don’t think there will be” a tax cut for the rich.
His comments come after President Donald Trump said last week that “the rich will not be gaining at all with this plan.”
Though both the Trump administration and House Republicans have proposed steep cuts for the wealthy, scaling them back would make the politics easier, because any boon to the rich would be the first thing Democrats criticize and hobble any chances of bipartisanship. It would also make it easier to get the numbers behind their plans to work, by reducing its cost.
Trump “seems to be more interested in Democratic positions on taxes,” said Rep. Richard Neal of Massachusetts, the top Democrat on the Ways and Means Committee. “It seems to be pretty clear that he’s not headed toward 2001- and 2003-“ style tax cuts.
But it would also mean radical changes to the tax plans on which many Republicans ran in last year’s elections. It would likely disappoint traditional supply-siders eager to flatten the tax code by reducing rates as much as possible.
Republicans would have to rethink much of their tax plans, which would currently help the wealthy in six main ways: cutting the top income-tax rate; eliminating the estate tax; cutting capital gains rates; reducing taxes on corporations as well as “pass-throughs,” whose owners pay individual tax rates; and eliminating the alternative minimum tax, which is designed to make sure the wealthy don’t escape taxes altogether.
Many are skeptical they would be able to produce a plan that official budget scorekeepers would show not helping the wealthy more than other income classes.
For one thing, the well-to-do pay a disproportionate share of all income taxes. What’s more, it’s hard to cut taxes on the middle class without helping the rich, because the U.S. tax system taxes earnings in steps, regardless of how much people earn in total. So if lawmakers, say, cut the 25 percent bracket, that helps people earning $60,000 and $60 million.
In addition, the congressional Joint Committee on Taxation believes that cutting the corporate tax rate — a top priority for Republicans — will mostly benefit companies’ shareholders, who tend to be high earners.
Trump has been consistent in his desire to push the top corporate rate down from 35 percent to 15 percent and that remains his goal, people close to the matter said.
But the Big Six are aiming to show some flexibility in the document set for release next week, while acknowledging that talks have moved on to a number higher than 15 percent. People close to the tax reform process believe any final legislation would have a corporate rate between 20 percent and 23 percent, if not slightly higher.
They added that the announcement is also likely to move away from the idea of allowing businesses to immediately deduct the cost of new capital investments from their taxes. While some economists see such “expensing” as the best way to spur growth, it would also be highly expensive and make it more difficult to push down the top corporate rate.
Instead, tax reform negotiators could propose a limited period of accelerated capital investment deductions that would expire after a few years if they’re not renewed. The idea would be to provide some immediate economic stimulus without blowing up the deficit.
There’s still significant friction on details within the Big Six, including over how much to worry about potentially adding to the debt and deficit.
Congress also has to figure out whether it can make all or even some of the tax changes permanent and still comply with rules that prohibit long-term deficit growth under the “reconciliation” process that would allow tax reform to pass the Senate with just 51 votes.
Before tax reform can proceed, congressional Republicans need to adopt a budget including reconciliation instructions that would set the parameters for the size of any tax cut.
The House Budget Committee approved a budget in July. On Tuesday, two key Republican senators reached a compromise on the scope of tax breaks in the Senate GOP budget resolution, resolving the last major standoff holding up its release.
Sens. Bob Corker (R-Tenn.) and Pat Toomey (R-Pa.) tentatively called a truce in the weeks-long fight over the size of cuts in the GOP’s tax plan. They are expected to release a joint statement soon.
Corker has not yet said if he’s agreed to the $1.5 trillion in tax breaks over a decade that GOP senators reportedly have been considering. Toomey has called for at least $2 trillion.
When asked if this newest tax figure would have enough support to get through the Budget Committee, Corker said: “I think so.”
Corker has said that he wants to see an agreement that does not contribute to the deficit. “I’m glad to give the Finance Committee the headroom to deal with the parliamentary issues and all that, but by the time it’s all said and done, and we end up with a tax bill, for me, it’s important that we have no deficit,” Corker said.
The Senate Budget Committee member has been one of the toughest critics of a tax plan that would add more than $1 trillion to the deficit. That committee can only afford to lose one vote to advance a budget. Sens. Chuck Grassley (R-Iowa) and Lindsey Graham (R-S.C.), who also call themselves budget hawks, have voiced concerns about the $1.5 trillion figure, according to a person familiar with the conversations.
McConnell has been pressing the Senate Budget Committee to finalize its plans by early next week, paving the way for a committee vote and a Senate floor vote later this month.
Sarah Ferris and Jennifer Scholtes contributed to this report.
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