Senate Republicans unveiled a tax plan Thursday that would delay a deep cut to the top corporate rate by one year but keep some deductions and credits that had been on the chopping block, lower the top tax bracket, and continue a modified estate tax.
“It will reduce individual tax rates across the board and direct substantial relief to low- and middle-income families and workers,” Sen. Orrin Hatch, chairman of the Finance Committee, said on the Senate floor. “It will bring down corporate tax rates, a goal long shared by Republicans and Democrats, and provide businesses with new opportunities for growth and expansion. It will modernize our international tax system.”
The top corporate rate would drop from 35% to 20% in 2019, a year later than it would in a revised bill approved Thursday by the House Ways and Means Committee. That change, which reduces the overall cost of the tax cut package, delays one of President Trump's main priorities for overhauling the tax code, but administration officials did not seem concerned during a brief appearance with Hatch on Thursday afternoon.
“It’s a great day in moving in the right direction for middle-income tax cuts and making our businesses competitive," Treasury Secretary Steven Mnuchin said.
Nevertheless, the corporate delay will be one of many sticking points as the House and Senate try to compromise.
“As a means of creating economic growth, we're in favor of beginning the tax cuts immediately rather than phasing them in. The President supports this position as well,” said Rep. Mark Meadows, who chairs the hard-line conservative House Freedom Caucus.
Meadows said if the Senate was looking for ways to cover the cost of restoring other tax deductions, it would be better to repeal the mandate in the 2010 Affordable Care Act that requires people to have health insurance. The Congressional Budget Office said Wednesday that change would reduce deficits by $338 billion over the coming decade, but also lead to 13 million fewer people with insurance in 2027 and higher rates for those who remain in government-managed exchanges.
That provision was not in the Senate plan, nor was it added Thursday afternoon by Ways and Means Chairman Kevin Brady, R-Texas, in a revised bill he unveiled shortly before the panel voted along party lines to approve it.
Sen. Bob Corker of Tennessee said senators are still discussing whether to add language repealing the Obamacare mandate, but “There’s no decision now.”
Earlier Thursday, House Speaker Paul Ryan, R-Wis., said he would favor the move.
“Of course I want to get rid of the individual mandate … I want to get of the individual mandate any way I can because I think the individual mandate is doing great damage to people in this country. We’re making people buy something they can’t afford and don’t want,” he said.
Brady's revised bill did make two changes to address criticism from Republicans: It restored the adoption tax credit and allowed military families to deduct moving expenses.
Even with the delay in corporate cuts, the Senate plan will increase the national debt by $1.5 trillion over the next decade if no benefits for economic growth are included in the analysis, Finance Committee aides said.
And that could cause a problem with deficit hawks in the Senate, who were looking for a plan that eliminates credits and deductions to balance the revenue losses of lower tax rates. Instead, the Senate kept deductions the House would eliminate, such as those for major medical expenses, teachers' classroom expenses and student loan interest.
“I remain concerned over how the current tax reform proposals will grow the already staggering national debt by opting for short-term fixes while ignoring long-term problems for taxpayers and the economy," said Sen. Jeff Flake, R-Ariz. "We must achieve real tax reform crafted in a fiscally responsible manner.”
On the other hand, the Senate plan would fully eliminate the deduction for state and local income, property and sales taxes. House Republican leaders had considered that, but the bill introduced last week included a scaled-back deduction for property taxes because full elimination jeopardized passage of the overall plan. Eliminating the tax deduction threatens a revolt by Republican lawmakers from high-tax states such as California, New Jersey and New York.
In the Senate, those states are all represented by Democrats, so the issue is not as pressing. Sen. Tim Scott, R-S.C., said if the Senate passed a bill without the state and local deduction, some version of it could be put back by a House-Senate conference committee.
The Senate plan also would keep the estate tax, which the House plan would phase out entirely. Anti-tax groups have long crusaded against the levy.
The Senate plan would not change the deduction for mortgage interest, a rejection of the House bill provision limiting the deduction to new mortgages of $500,000 or less. That change did not satisfy the National Association of Realtors.
"We’ve already seen that a near-doubling of the standard deduction, combined with the elimination of other deductions like the state-and-local tax deduction, can turn the American Dream into a nightmare for families, as the rug is pulled out from under them," said Elizabeth Mendenhall, president of the realtors group. "Simply preserving the mortgage interest deduction in name only isn’t enough to protect homeownership."
The full House will vote on its tax bill next week, just as the Senate Finance Committee will take up its measure. Full Senate action would not come until after Thanksgiving, and if the bill is approved then, a conference committee would have to work out the differences.
Before his committee voted, Brady issued a warning to Democrats and special interests who were opposing the bill.
"We are sending a very clear message to those of you who defend the status quo, to those who love this complexity, who crave their special tax breaks ... your days are over," Brady said. "Americans deserve a new tax code for a new era of prosperity, and today we deliver."
But Democrats were saying it was Republicans who needed to tread carefully.
“Democrats and Republicans alike believe our tax code is broken and needs to be fixed," said Sen. Ron Wyden of Oregon, the top Democrat on the Finance Committee. "It’s clear Republicans ignored that call for unity by continuing to act on a reckless partisan process fueled by irresponsible policies that will leave middle-class families in the lurch.”
Senate Minority Leader Chuck Schumer, D-N.Y., said Republicans were working to speed action on the bill because they "know that the longer their bill is out there for the public to see, the less they’ll like it. Their only hopes of passing it are to rush it through."
Contributing: Eliza Collins and Deirdre Shesgreen