Senior White House and congressional officials are preparing to back away from demanding a top corporate rate of 15 percent as part of a sweeping tax overhaul, people familiar with the negotiations said.
Instead, a new announcement with fresh tax reform details expected next week will likely point toward a top corporate rate of 20 percent or lower, these people said. 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.
Allowing this kind of “immediate expensing,” promoted by some economists as the best way to spur growth, 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 sunset after a few years. The idea would be to provide some immediate economic stimulus without blowing up the deficit.
This approach could also quell simmering differences between House and Senate Republicans on how to approach the big-ticket tax package, a key agenda item that the White House and Hill GOP officials are desperate to complete this year.
The White House declined to discuss specific details.
“The White House and Congress have been working together to achieve a framework for tax reform that gives American workers a pay raise, makes our tax system more competitive for businesses to create jobs and grow the economy, and simplifies the tax code to make it more fair for hardworking, middle-income families,” a White House spokesperson said.
President Donald Trump has been consistent in his desire to push down the top corporate rate from 35 percent to 15 percent and that remains his goal, people close to the matter said.
But negotiators comprising the so-called Big Six group of officials from the White House and Capitol Hill are aiming to show some flexibility in the new document 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 of between 20 percent and 23 percent, if not slightly higher.
The officials close to the talks cautioned that discussions about exactly what to say next week about the tax overhaul effort — and when to say it — remain highly fluid and could change multiple times in the days ahead.
There’s still significant friction on details within the Big Six, which includes Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, House Ways and Means Chairman Kevin Brady, House Speaker Paul Ryan, Senate Finance Chairman Orrin Hatch and Senate Majority Leader Mitch McConnell.
Hatch said last week that whatever the group comes up with will just be guideposts and his committee won’t be a “rubber stamp.” There are also differences among House Republicans and Senate Republicans on how big of a tax cut to give individual taxpayers and how much to worry about potentially adding to the debt and deficit.
As of now, one possibility is for Trump to discuss the latest announcement on taxes at a Sept. 29 event in Indiana, people familiar with the matter said. But Mnuchin and Cohn are likely to release the new details earlier in the week, perhaps flanked by senior GOP congressional leaders.
Mnuchin said at a POLITICO event last week that the new document would include many fresh, specific details on rates and potential deduction changes to help offset the cost of lower rates. But Brady, who will draft the first version of a tax bill sometime this fall, said at the same event that any new document would probably not include many details.
Two officials close to the Big Six talks said Brady was correct and that while the announcement might have some additional information it would not likely talk very much about “pay-fors” that could be included in any legislative package to offset the cost of tax cuts. It is likely to once again be more of a messaging effort on tax reform rather than a meaty proposal.
Mnuchin and other administration officials have talked publicly about eliminating the deduction for state and local taxes as one possible pay-for and have discussed others, including limiting the mortgage interest deduction.
Trump has repeatedly said he doesn’t want the package to lower the overall tax burden on the wealthy, though it will be hard to deliver on that promise if any final package eliminates the alternative minimum tax that is aimed at upper-income earners and the inheritance tax, in addition to allowing individuals who file business income on their personal returns to use a new, lower corporate rate. Negotiators are trying to come up with a way to limit that so-called pass-through rate to manufacturers and other small businesses rather than wealthy lawyers, doctors and investment managers.
In addition to lowering the corporate rate, the White House and Republicans in Congress want to reduce individual rates and switch to a “territorial” corporate tax system in which foreign earnings are taxed only where they are earned, not again when they are brought back to the U.S.
Congress still 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.