Republicans in the House and Senate say that they have reached a deal on a final tax bill, which would cut the rate for the richest Americans more deeply than either chamber had originally planned.
For the past week, members of the Republican conference committee have been working to reconcile the tax packages passed by each house of Congress, with the hope of voting on a final bill before Christmas. The compromise reached today would drop the top individual income tax rate to 37 percent, from the current 39.6 percent. (The original House bill would have left the number unchanged, while the Senate version only lowered it to 38.5 percent.) However, more taxpayers will also be required to pay the top rate than under either the House or Senate bills, which had only applied it to families making at least $1 million. In short, millionaires win, and people who make high six-figures lose by getting kicked up to the highest bracket.
The bigger cut for high earners appears to be aimed at placating wealthy blue state Republicans, particularly on Wall Street, who have worried that the legislation could leave them paying more to the IRS by limiting their ability to deduct state and local taxes. According to the Washington Post, some of Donald Trump’s New York friends had been lobbying the president directly about their concerns.
The conference bill would also let Americans subtract more of their state and local taxes from their federal returns. Under the new plan, the Times reports, taxpayers will be allowed to deduct up to a combined $10,000 worth of property taxes and either income or sales tax. The previous bills only allowed households to keep deducting property taxes. A conflicting story by Politico seemed to suggest that the new bill will require households to choose between deducting their property or income taxes. If the Times is right, though, this is a win for residents of pretty much any state with a high income tax, and especially California, where property taxes tend to be low.
Other important features of the deal: After months of aiming for a 20 percent corporate rate, Republicans have settled on 21 percent in order to make their deficit math work. Given that the current rate is 35 percent, we’re still talking about an enormous cut. Republicans will also do away with the corporate alternative minimum tax, which—in a hilarious, late-night lapse of judgment—Senate Republicans inserted back into their bill at the last minute, thus accidentally hiking corporate taxes back up by around $300 billion. That booboo has been bandaged.
Meanwhile, the bill hits luxury homeowners by curtailing the mortgage interest deduction a bit. Taxpayers will only be allowed to claim interest on up to $750,000 of debt, down from $1 million today. (This splits the difference between the House’s approach, which would have cut the limit to $500,000, and the Senate’s, which would have left the number alone.) Finally, the bill will allow owners of pass-through businesses to deduct 20 percent of their profits from their taxes. That’s lower than the 23 percent in the Senate bill but higher than the chamber’s original plan for 17.4 percent. Either way, it’s a pointless giveaway to wealthy owners of LLC’s and S-Corps, like Donald Trump.
Anyway, it seems that Republicans have settled their issues in large part by cutting taxes slightly less for shareholders and slightly more for multimillionaire bond traders while giving a break to West Coast House members fearful for their jobs. What’s kind of funny about this whole arrangement is that Republicans have spent the last several months arguing that their corporate cuts are really designed to help workers by encouraging companies to invest and raise wages. So, by the party’s own logic, they’ve decided to help out finance types with sky-high salaries at the expense of the middle class by dialing back corporate cuts in order to finance a reduction in the top income tax rate. But hey, at least Trump’s golf buddies might stop complaining.