Tax debate update: The struggle for 20%

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House and Senate Republicans are working this week on compromise tax-overhaul legislation in an effort to send it to President Donald Trump by the end of the year. Here are the latest developments, updated throughout the day:

Portman Says He’s ‘Pretty Confident’ on 20% (5:52 p.m.)

Republican Senator Rob Portman, one of the chief tax writers, said he’s “pretty confident” that GOP lawmakers will be able to set a corporate rate of 20 percent in their final tax bill -- below the 22 percent figure that some lawmakers have sought.

“You just don’t want to have the U.S. be uncompetitive,” Portman of Ohio said in an interview Thursday. The whole idea, he said, is “to get it slightly below the industrialized country average, so that in the next couple years we’re not back in the same situation we are now.”

The average rate among countries in the Organisation for Economic Co-operation and Development is about 23 percent.

"U.K.’s going to 18 next year,” Portman said. “They’re already going below.”

President Donald Trump and many GOP lawmakers have been intent on setting the corporate rate at 20 percent to keep U.S. companies from moving their factories and jobs offshore. But Trump unexpectedly walked back from what he’d called a “non-negotiable” position on Saturday, when he suggested he was open to 22 percent.

Still, Portman added: “I think he’d prefer a 20 percent rate, from everything I know. I think he’s communicated that pretty clearly.”

-- Steven T. Dennis

Trump’s 22% Talk Said to Undercut McConnell (4:00 p.m.)

Senate Majority Leader Mitch McConnell is pushing to set the corporate tax rate at 20 percent, but he faces an uphill battle because President Donald Trump has already suggested he’s open to 22 percent, according to a person familiar with the matter.

Republicans in both the House and Senate have already approved tax-overhaul legislation that would cut the corporate rate to 20 percent from 35 percent -- but differences in the two bills need to be worked out before they can be sent to Trump for his signature.

On Saturday, hours after the Senate approved its measure, Trump told reporters that the corporate rate “could be 22 when” a final bill emerges.

-- Steven T. Dennis

Brady Weighs Slower Pace on Offshore Changes (3:18 p.m.)

House Ways and Means Chairman Kevin Brady told reporters that it might be “fair” to slow down the pace of changes to the U.S. system of international taxation.

“The international provisions are complex, just by the nature,” Brady said Thursday. “We’ve had industries ask for transition periods in certain areas just to create that certainty. Most of those requests, I think, are very fair.”

The House and Senate have approved bills that take different approaches to revamping international tax provisions for corporations -- and reconciling them will be one issue for congressional leaders to hammer out before they can send any final legislation to President Donald Trump.

Brady said he hadn’t discussed any possible delay in the international provisions with Senate representatives. And he declined to identify which industries had requested the slowdown.

-- Laura Davison

White House Backs Off Of 20% Rate Red Line (2:28 p.m.)

The White House continues to signal openness to a tax overhaul that features a corporate rate higher than 20 percent.

“Fifteen is better than 20, 20 is better than 22 and 22 is better than what we have,” White House Press Secretary Sarah Huckabee Sanders said Thursday during a press briefing. Still, she added: “Our focus has been on getting the lowest corporate rate possible.”

President Donald Trump first introduced some confusion over the weekend, when he unexpectedly suggested that he was flexible on the 20 percent rate -- after the White House had previously insisted that it was a requirement for him.

In September, Trump called the 20 percent rate “a perfect number,” and “a red line” that was non-negotiable.

Earlier Thursday, the White House seemed to be sending mixed signals about the corporate rate level.

Meanwhile in the House, Ways and Means Chairman Kevin Brady, who’s overseeing the House-Senate conference committee for tax negotiations, said the president’s comments about a possible 22 percent rate provides lawmakers with flexibility, if a change is needed to help offset the cost of other modifications to the tax plan.

“No decision yet if it is needed,” Brady said.

-- Jennifer Jacobs, Jennifer Epstein and Laura Davison

Most Americans Seen Disapproving of GOP Plan (1:50 p.m.)

Three new polls suggest Republicans are losing the messaging war over their tax overhaul, which they hope to make a centerpiece of the 2018 congressional campaigns.

Americans disapprove of the GOP tax plan by a margin of 53 percent to 35 percent, according to a CBS News survey released Thursday.

Two other surveys released earlier this week also paint a grim picture. A Quinnipiac University poll found 53 percent of respondents disapprove compared to 29 percent who approve, while a Gallup poll found 56 percent of respondents don’t approve of proposed changes to the Tax Code.

The studies also indicate that most Americans don’t think the middle class will be the biggest beneficiaries under the revamp, as President Donald Trump and GOP leaders have promised.

The CBS poll found that 69 percent of respondents believe the plan favors "wealthy Americans" while 31 percent said it favors “middle-class Americans.”

The Quinnipiac poll found that Americans believe by a nearly 2-to-1 margin that the tax plan benefits the rich at the expense of the middle class.

By a roughly 2-to-1 margin, both the Quinnipiac and CBS poll respondents said the plan will increase -- not decrease -- their taxes.

There is one silver lining for GOP incumbents, however: Each of the polls found high approval of the tax plan among self-identified Republicans, which suggests that supporting it could help lawmakers in their renomination contests next spring.

The CBS poll was conducted from Dec. 3-5 among a random sample of 1,120 adults nationwide. Quinnipiac surveyed 1,508 voters nationwide from Nov. 29 to Dec. 4. The Gallup poll results were based on interviews conducted from Dec. 1 to Dec. 2 with a random sample of 1,020 adults.

-- Sahil Kapur

European Regulators Eye WTO Concerns in Bills (12:13 p.m.)

The European Commission is examining whether international tax provisions in the House and Senate bills that are aimed at preventing U.S. companies from shifting their profit into foreign jurisdictions would violate World Trade Organization rules.

EC officials are looking into whether a proposed 20 percent excise tax on certain payments made by U.S. companies to foreign affiliates would be discriminatory -- and therefore a WTO violation. The tax provision, contained in a bill the House passed last month, wouldn’t apply to payments between two domestic affiliates.

At the same time, European Union diplomats said that the commission is investigating whether a proposal in the bill that the Senate approved Dec. 2 -- to create a special deduction for “foreign-derived intangible income” -- would constitute an illegal export subsidy. Another Senate levy that would fall on deductible payments made to foreign affiliates has also come under scrutiny.

Spokeswomen for congressional tax-writing panels in the Senate and House didn’t immediately respond to requests for comment.

EU finance ministers asked the commission on Dec. 5 to review tax-overhaul measures in the U.S. amid their concerns about the legislation. House and Senate lawmakers are working this week on a compromise measure for their differing tax legislation, with a goal of delivering a finished bill for President Donald Trump’s signature by the end of the year.

Both bills would cut the U.S. corporate tax rate to 20 percent from 35 percent and move toward a “territorial” approach that would focus on companies’ domestic economic activity. But at the same time, they contain provisions aimed at trying to prevent companies from holding income-generating intellectual property in lower-tax foreign jurisdictions.

The House’s 20 percent excise tax would apply to certain payments, including IP royalties, made to foreign units. The Senate bill contains a provision aimed at inducing companies to hold their IP in the U.S. rather than shifting it -- and the foreign income it produces -- overseas.

-- Joe Kirwin, Lynnley Browning

White House Sends Mixed Signals on 20% Rate (11:12 a.m.)

Kevin Hassett, the top White House economist, said Thursday he doesn’t think setting a corporate rate higher than 20 percent in the tax bill would undermine its growth effects.

“If you model the income tax rates that are changing and the corporate tax rates that are changing, it is not necessarily undermining the effect of the bill,” Hassett said at a forum in Washington.

Lawmakers are working to find revenue to offset potential changes including expanding state and local tax deductions, and repealing the corporate alternative minimum tax. Setting the rate at 22 percent instead of 20 percent would free up roughly $200 billion in revenue.

“Everybody in the White House is cognizant of the fact that there are things they are working on repairing -- like the AMT stuff -- that may require revenue from a different source,” Hassett said. “We don’t want to get in front of that process.”

Senate Finance Chairman Orrin Hatch said Wednesday “there is a drive” to set the corporate rate at 22 percent instead of the 20 percent that Senate and House bills have proposed.

Hassett, chairman of the White House Council of Economic Advisers, has been touting the benefits of slashing the corporate rate -- saying the economic growth that will result will cover their cost over 10 years. Independent studies have reached differing conclusions. The growth and wage increases Hassett has highlighted have been based on a corporate tax rate of 20 percent.

Hassett’s comments contribute to the White House’s mixed signals over whether a tax bill that calls for a corporate rate above 20 percent is acceptable to President Donald Trump and his administration.

White House Legislative Affairs Director Marc Short said earlier Thursday the administration is “anxious to keep the corporate rate at 20 percent.”

“One of the reasons so many jobs have left our country is because the corporate tax rates are so much lower across the globe,” Short said during an interview on National Public Radio. “So we need to make sure we’re competitive.”

Trump introduced the confusion over the weekend, when he unexpectedly suggested that he was flexible on the 20 percent rate -- after the White House had previously insisted that it was a requirement for him.

When asked about proposals to cut the corporate rate to 22 percent instead of 20 percent, Hassett said: “The president has spoken for himself.”

-- Steve Matthews

Negotiators Poised for Pass-Through Battle

Questions about how to tax pass-through businesses, such as partnerships and limited liability companies, are emerging as the thorniest issue facing House and Senate lawmakers who are set to begin meeting in a combined “conference committee.”

President Donald Trump -- who himself has interests in roughly 500 pass-through entities, most of which are organized as LLCs -- has said he thinks the best of the House and Senate plans should be blended during what he called the conference committee’s “mixer.”

But it’s not that easy when it comes to the treatment of pass-through businesses, in part because of divergent approaches. The House would set a lower tax rate on the businesses’ income, while the Senate would allow for a significant deduction on that income.

The House bill calls for lowering the top rate for pass-through business income to 25 percent from 39.6 percent and creates a still lower rate of 9 percent for businesses with the lowest earnings. It would apply to no more than the first $75,000 of net business income, but would be limited to businesses making no more than $150,000 total. The lower rate would phase out at higher incomes.

The House bill would restrict the 25 percent tax rate to just 30 percent of business owners’ income. The rest would be treated as wages. Or they could use a formula based on their level of capital investment to determine how much income would get the new rate.

Critics have said the system runs counter to GOP leaders’ promises of simplicity.

In the Senate, demands from Republican Ron Johnson of Wisconsin and Steve Daines of Montana led tax writers to create a 23 percent deduction for pass-through owners. After the deduction, owners would pay tax at their individual income tax rates. The deduction would be limited for single pass-through owners with taxable income above $250,000 and for married couples with income above $500,000. And it would expire in 2026.

The Senate version has an edge in the negotiations because it’s simpler, according to two lawmakers familiar with the negotiations who asked not to be named because the discussions are sensitive.

“Some people understand the Senate bill a bit better,” said Rep. Devin Nunes, a California Republican and a member of the conference committee, referring to the pass-through measure. “It’s easier, I think, for the average American to understand, so that’s an advantage of the Senate bill.”

Adopting the Senate provision in the final bill could face pushback from House conservatives Mark Meadows of North Carolina and Jim Jordan of Ohio. The two met with senators to discuss pass-throughs earlier this week. Meadows, chairman of the influential House Freedom Caucus, said the Senate proposal “won’t work.”

GOP lawmakers are “making sure we take the best on the pass-though sides,” Ways and Means Chairman Kevin Brady, who’s overseeing the House-Senate conference committee, said Wednesday. “I think we can do better than both there.”

Aside from pass-throughs, House and Senate lawmakers also have to grapple with other potential sticking points, including: the effective start date of a corporate rate cut how to handle individual deductions for state and local taxes whether to preserve or repeal the corporate and individual alternative minimum taxes international tax provisions settling on a top individual tax rate whether to keep the estate tax and specific terms of deductions for medical expenses, student loans and mortgage interest.

-- Erik Wasson, Kaustuv Basu, Laura Davison and Alex Ruoff

What to Watch on Thursday:

Keep an eye out for lawmakers or others to leak trial balloons about possible decisions on pass-through provisions, state and local tax deductions, the corporate alternative minimum tax, and other measures to try to gauge reactions as negotiations continue.

Here’s What Happened on Wednesday:

The Senate finished its debate on Wednesday evening for the motion to proceed to conference. Senate Majority Leader Mitch McConnell named eight Republican lawmakers to be part of the panel responsible for negotiating a final tax bill with House lawmakers. Senate Finance Chairman Orrin Hatch said “there is a drive” to set the corporate rate at 22 percent instead of the 20 percent that Senate and House bills have proposed. Still, the Utah Republican said his preference is 20 percent, down from the current 35 percent level. Republican lawmakers are discussing a compromise on state and local tax deductions that would allow taxpayers to deduct state income tax, House Ways and Means Chairman Kevin Brady said. Under one proposal that’s being discussed, taxpayers could deduct both their state income tax and state and local property taxes up to a combined limit of $10,000, according to Representative Ryan Costello, a Pennsylvania Republican. McConnell said he’s open to tweaking final tax legislation to appease lawmakers who want to let constituents deduct state income taxes. Two House members from New Jersey -- Leonard Lance, a Republican, and Josh Gottheimer, a Democrat -- plan to submit a joint proposal to the conference committee that would maintain SALT in its entirety.

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