WASHINGTON – Key Republican lawmakers oppose efforts to scale back a proposed cut in the corporate income tax rate to pay for other tax breaks, complicating efforts to appease Republicans from high-tax states.
Both the House and Senate tax packages would reduce the corporate income tax rate from 35 percent to 20 percent. However, negotiators have been discussing whether to set the corporate rate at 22 percent to help pay for an expanded deduction for state and local income taxes and other provisions.
“I think a 20 percent rate is a better rate,” Sen. Pat Toomey, R-Pa., said Thursday. “We’re far better off for a lot of reasons if we can hold it to 20, but we do have some challenges that we’ve got to work through, so we’ll work through them.”
A prominent House member agreed.
“I continue to argue the 20 percent rate not only makes us competitive, it ensures that we are bringing jobs back from overseas,” said Rep. Kevin Brady, R-Texas, chairman of the tax-writing House Ways and Means Committee.
Toomey and Brady are both on the conference committee that is working to reconcile the House and Senate bills. So is Sen. Tim Scott, R-S.C.
Scott said a 22 percent rate “changes the distributional burden throughout the tax code, so while it is something that lots of folks are talking about, I don’t know that it is as simple as it seems.”
“I’m likely to advocate to keep it where it is,” Scott added.
President Donald Trump opened the door to scaling back the corporate tax cut over the weekend, telling reporters, “It could be 22 when it comes out, but it could also be 20. We’ll see what ultimately comes out.”
Brady said, “My view is the president was giving us flexibility in that area if it’s needed.”
Both the House and Senate tax packages would provide steep tax cuts to businesses and more modest tax breaks for families and individuals.
Lawmakers are struggling to find additional revenue to help pay to sweeten some of the tax breaks for both individuals and businesses. They are working under the constraints of Senate budget rules, which limit the overall size of the tax package to $1.5 trillion over the next decade.
Both the House and Senate tax bills initially repealed the entire deduction for state and local taxes, a tax break enjoyed by more than 43 million taxpayers last year. Both bills have since been amended to allow homeowners to deduct up to $10,000 in property taxes.
The provision was a compromise among Republicans from high-tax states such as New York and New Jersey. California Republicans are pushing for an amendment to let taxpayers deduct local income taxes, too, and they appear to have an ally in Senate Majority Leader Mitch McConnell, R-Ky.
McConnell called the proposal a “reasonable idea.” It is unclear how much it would cost to expand the tax break.
Lawmakers also are working to eliminate the alternative minimum tax for corporations, which was meant to ensure that businesses pay at least some tax. The House bill eliminates the tax, but it was added back to the Senate bill to raise an additional $40 billion over the next decade.
Brady said the tax “undermines many of the pro-growth aspects of the new tax code. It’s not something the House wants to retain in there, but we’re going to have those discussions with the Senate.”