U.S. Senate Republicans unveiled a tax plan on Thursday that differed from the House of Representatives’ version on several key fronts, including how they treat the corporate tax rate, the tax deduction for state and local taxes, and the estate tax.
Complicating a Republican push for the biggest overhaul of U.S. tax law since the 1980s, senators said that, like the House, they wanted to slash the corporate tax rate to 20% from 35%, but in 2019, not right away.
The House was set to vote on its measure next week after its tax-writing Ways and Means Committee approved the legislation on Thursday along party lines, with Democrats united in opposition.
The Senate’s timetable was less clear, with a formal bill yet to be drafted in that chamber, where Republicans have a much smaller majority and a narrower path to winning approval for any legislation, let alone one as contentious as a tax package.
As President Donald Trump toured Asia, Republicans reiterated their goal of enacting final legislation by the end of the year. If that happens, it would be Trump’s first major legislative accomplishment since he took office in January.
Stocks, which have rallied this year on hopes for business tax cuts, declined as details of the two plans emerged. Investors worried about divergence between the House and Senate and the Senate’s proposed corporate tax rate cut delay.
In a broad sense, the House and Senate plans matched up in calling for deep tax cuts for high-earners and businesses and for a dramatic reshaping of how the United States taxes multinational corporations, big winners if the plans become law.
Democrats, largely ignored in the closed-door drafting of both bills, have condemned them as giveaways to the rich and businesses that will do little for ordinary Americans.
White House economic adviser Gary Cohn handed them ammunition in comments in a CNBC interview, saying: “The most excited group out there are big CEOs, about our tax plan.”
The White House issued statements that praised the Ways and Means Committee and the tax-writing Senate Finance Committee and expressed confidence that further progress would be made.
Victories by Democrats in state and local elections in Virginia, New Jersey and elsewhere on Tuesday increased the urgency for Republicans, who control both the White House and Congress, to make good on their campaign promises on taxes.
“We’re going to get this over the finish line,” House Speaker Paul Ryan said, adding the House would not just approve whatever the Senate passes and that a House-Senate conference committee would be needed to reconcile differences.
One big disagreement between the two chambers concerns a deduction now available to Americans for state and local taxes (SALT), a keen concern for taxpayers in high-tax, typically Democratic-leaning states such as California, New York, New Jersey, Connecticut and Massachusetts.
The Senate plan would entirely repeal the SALT deduction. The House bill would repeal it only for state and local income and sales tax, but preserve it for property tax up to $10,000.
Democratic Senate leader Chuck Schumer of New York said repealing the SALT deduction and other parts of the Republican proposals would hurt middle- and upper-middle-class Americans.
“Passing this plan won’t help Republicans climb out of the hole they are in … This bill could be your political doom,” he said on the floor of the Senate, where Republicans will need to be especially united given their slim 52-48 majority.
Another point of friction is the estate tax on inheritances. The Senate would leave it on the books, but increase exemptions so fewer people pay. The House would increase exemptions, but repeal the tax over a six-year period.
The Senate calls for keeping the existing seven tax brackets and cutting the top tax rate for the highest-earning taxpayers to 38.5% from 39.6%. The House wants to reduce the number of brackets, but leave the 39.6% top rate alone.
The Senate would close a loophole that allows private-equity fund managers and other wealthy Wall Street financiers to pay the capital gains tax rate on “carried interest” income, instead of the higher wage rate. The House plan leaves the tax break in place, but further restricts who can claim it.
In another divide that will need bridging, both chambers call for slapping a mandatory tax on $2.6 trillion in foreign profits being held offshore by U.S. multinationals. The Senate wants that tax to be 12% for cash and liquid assets, and 5% for non-liquid assets. The House amended its bill on Thursday, going to 14% and 7%, respectively.
A late revision to the House bill exempted vehicle dealers from new limits on interest deductibility on inventories, responding to car dealers’ concerns about an earlier draft.
Such tweaks to both bills were expected to continue in days ahead as lobbyists descend on Capitol Hill seeking favors.
“At every stage, the GOP tax scam grows more generous for multinational corporations and more destructive toward American workers and middle class families,” California’s Nancy Pelosi, the Democratic leader in the House, said in a statement.
Both bills would add $1.5 trillion over 10 years to the budget deficit and national debt, a problem that not long ago would have drawn Republican criticism.
Pelosi said: “It turns out that deficit hawks are extinct in the Republican Party.”