Marco Rubio decided to add a little drama for the Republicans troubled $1.5 trillion tax plan, but he got a better child tax credit bringing everything together. Even Tennessee’s Bob Corker is putting his support behind the bill.
On Friday, as details emerged about the final bill, it became clear that the agreement would provide slightly more generous tax breaks to low- and middle-income Americans by reducing some benefits for higher earners, one of several tweaks intended to solve the budget problems standing between the bill’s passage and President Trump’s desk, according to people briefed on the final plan.
A spokeswoman for Mr. Rubio said the senator would vote yes on the legislation, given the changes that were made. The final bill will allow families who owe no federal income taxes to still claim up to $1,400 of the $2,000 child tax credit, up from $1,100 in the original version.
For far too long, Washington has ignored and left behind the American working class. Increasing the refundability of the Child Tax Credit from 55% to 70% is a solid step toward broader reforms which are both Pro-Growth and Pro-Worker.
— Marco Rubio (@marcorubio) December 15, 2017
The bill’s text, which was signed by Republican negotiators from the chambers’ conference committee on Friday, includes few major changes from the version that passed the Senate earlier this month. The 2025 expiration date for the individual tax cuts remains, as does the estate tax, which would apply to fewer Americans down the road. At the center of the $1.5 trillion bill are large tax cuts for corporations and other businesses, which Republican lawmakers say will create jobs, investment, and economic growth.
Compared to the Senate bill, the revised legislation would lower some thresholds for entering a higher individual marginal tax bracket. For example, the top bracket for a married couple filing jointly would begin at $600,000 a year, down from $1 million in the Senate bill.
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Owners of so-called pass-through businesses, who pay taxes on their profits at the owner’s individual tax rate, would receive a slightly less generous tax break than the original bills called for, allowing a 20 percent deduction on profits they earn. That deduction would phase out — with some exceptions — starting at $315,000 of income for couples. The Senate bill included a larger deduction, 23 percent, and a higher phase-out point, $500,000 for couples.
Two newly revealed changes on the business side would help offset revenue losses: a provision that would allow corporations to deduct 80 percent of their net operating losses in the future, down from 90 percent in the Senate bill, and one that would effectively reduce the annual value of research and development tax breaks starting in 2022.
In changes revealed earlier this week, the bill would reduce the corporate tax rate to 21 percent from a high of 35 percent today; the Senate and House bills had lowered the rate to 20 percent. It also allows taxpayers to deduct up to $10,000 a year in state and local taxes — a mix of property taxes and either income or sales taxes paid — in a bid to blunt tax increases on higher-earning workers in high-tax states such as New York and California.
The bill appears to be heading toward the finish line but at least three other Republican senators remained publicly undecided on Friday, including Mike Lee of Utah, who has allied with Mr. Rubio in pressing for an expanded child credit, and Jeff Flake of Arizona, who has been trying to extract commitments from Republican leadership related to the Deferred Action for Childhood Arrivals, or DACA, program. Senator Susan Collins of Maine has also expressed reservations about the bill’s reduction in the top individual tax rate and pushed for party leaders to support measures to bolster individual health care markets as a condition for her vote.
Ms. Collins’s office said on Friday that she had not yet seen the final bill. A spokesman for Mr. Flake said the senator was undecided.
Mr. Lee, in a statement, sounded upbeat about the bill, saying Mr. Rubio and other senators “have done a tremendous job fighting for working families this week and they have secured a big win.” He added: “I look forward to reading the full text of the bill and, hopefully, supporting it.”
Mr. Trump, when asked about Mr. Lee and Mr. Rubio on Friday, said he had no concerns about their support.
“I think they’ll be great,” he said. “They’re great people. They want to see it done. I know them very well. I know how they feel. These are great people and they want to see it done, and they want to see it done properly.”
Mr. Trump also told reporters he had seen the bill, and he liked it.
“I have seen it,” Mr. Trump said in brief remarks at the White House. “I think it’s going to do very, very well. I think that we are going to be in a position to pass something as early as next week, which will be monumental.”
So who are the winners and losers in the latest version of the Republican’s tax bill?
— Many individual taxpayers, including the richest. The bill would cut individual tax rates and double the standard deduction to $12,000 for single people and around $24,000 for couples. That would mean a tax break for most Americans, at least in the next few years. Late in the game, GOP leaders cut the rate for top earners to 37 percent (from the current 39.6 percent).
— Wealthy heirs. The estate tax threshold would get doubled to about $11 million for individuals and $22 million for married couples. Those whose inheritances would exceed those exemption levels would still get hit, since the plan wouldn’t end the estate tax as the House wanted, but there aren’t too many of them.
— Corporations and other businesses. The top corporate rate would move down to 21 percent from 35 percent, and shareholders and others with investment income would see their tax bills cut by one-third or more. Owners of businesses that are taxed at the same rates as individuals, from the corner grocery to the Trump Organization, would see their effective tax rate drop to less than 30 percent, at most, from as high as nearly 40 percent.
— Big U.S. companies that operate globally, like Apple and Microsoft. The United States would follow most other industrialized countries in switching to a “territorial” tax system, where overseas profits aren’t taxed at home. They’d also get a low, one-time tax rate when they bring home profits they’re holding abroad. However, that tax would be larger than expected, and they would face complex rules meant to discourage them from moving more money and operations abroad.
— Certain investors, particularly private equity firms. Investment fund managers wouldn’t have to reclassify their “carried interest” compensation — the share of investor profits that they get — from lower-taxed capital gains to ordinary income. Despite President Donald Trump‘s vow to end what some consider a loophole, the only new limit fund managers would face is the amount of time they have to hold assets to qualify for the lower rate — three years instead of one year under current law.
— People with high medical expenses and adopted children. Taxpayers would be able to deduct the costs of medical expenses that exceed 7.5 percent of their adjusted gross income for this tax year and next. In 2019, the threshold would return to 10 percent, its current level. House Republicans had proposed fully scrapping the deduction. A credit for adoptions also remains on the books, a provision that the House had also targeted for elimination.
— College students and K-12 teachers. College loan interest would remain deductible, and tuition waivers for graduate students wouldn’t get counted as taxable income. Both had been on the chopping block. But an excise tax on large college endowments is expected to remain in the tax package, which opponents are saying could hurt college scholarships going forward. For lower levels of education, teachers would still be able to deduct some of their out-of-pocket expenses for school supplies they buy their students.
— Local governments, hospitals and housing. The legislation would preserve the tax-deductible status of private activity bonds. They are used by state and local governments for infrastructure, by hospitals that want to expand and for building affordable housing.
— Businesses that invest in equipment and other capital. Major manufacturers would benefit the most from a provision that would let businesses immediately write off the cost of new investments, known as full expensing. It would be on the books for five years before beginning to wind down under the bill, but backers expect it to get extended.
— GOP brass: Trump, House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell are finally checking a legislative victory box as the bill speeds across the finish line with seemingly minimal resistance. They spent months trying to repeal the Affordable Care Act but couldn’t do it, and now they’re on the verge of eliminating a big part of it — the requirement for everyone to have health insurance — in the tax bill. Expect them to tell voters ahead of next year’s midterm elections that the tax cuts are growing the economy and everyone wins. But …
— Top earners who live in high-tax states like New York, New Jersey, and California. No one would more acutely feel the loss of the federal deduction for all state and local taxes and the new $750,000 cap on the home mortgage interest deduction, down from $1 million. A compromise on SALT would allow taxpayers to deduct property taxes and either income or sales taxes, with a combined limit of $10,000. But some lawmakers, particularly from the Northeast, still say it’s not enough for many of their constituents. Bottom line: The amount of their income that is taxable would increase.
Homeowners, mostly on the East and West coasts, could see their home values decline. It would also affect infrastructure and public services such as education, according to Americans Against Double Taxation, since raising revenue needed to fund the costs of governance would be harder if residents can no longer write off all state and local taxes.
— Certain service providers. Some pass-through businesses, including doctors and lawyers, would be precluded from the lower tax rates on pass-through income.
— Workers who depend largely on wages. Many of them would get a mostly minimal decrease in their marginal tax rate, compared to contractors and the self-employed. This is due to the changes in taxation of pass-throughs, and some tax experts say people would try to game the system to take advantage of the pass-through deduction.
— Deficit hawks. The tax plan was built with a $1.5 trillion budget allowance for tax cuts that didn’t require offsets, which advocates have said would mostly be made up by revenue from economic growth. But a host of official estimates and outside analyses have shown otherwise, and there’s certainly concern that the real cost of the package would exceed that $1.5 trillion when individual tax cuts that are only scheduled to run for eight years get extended as expected.
— Preachers who want to politic from the pulpit. The long-standing ban on churches and other religious organizations endorsing political candidates would continue, despite an attempt by the House to use the tax bill to repeal it. Many evangelical Christian groups have been lobbying for years to get rid of the prohibition, and Trump had vowed earlier this year to “totally destroy” it. But the Senate parliamentarian ruled the repeal doesn’t meet the chamber’s rules, and so it was jettisoned.