WASHINGTON - Senate Republicans are forging their own path on the effort to overhaul the U.S. tax code, offering a plan Thursday that would delay an immediate corporate tax cut President Trump has demanded and blow up House Republicans' carefully crafted compromise on a controversial tax deduction.
GOP Senate leaders unveiled a tax package that would delay cutting the corporate tax rate from 35 percent to 20 percent until 2019. That's a major departure from Trump's insistence on immediate tax cuts that he says are necessary to spur the economy.
The one-year delay would lower the cost of the Senate bill by more than $100 billion, giving negotiators more revenue for other changes.
But it could also delay companies moving back to the United States from overseas or prompt them to hold off on other decisions as they wait for the rate to fall.
The unveiling of the Senate plan, combined with a House committee vote to send a version of the bill to the House floor, is a major step forward in the party's efforts to rewrite the U.S. tax code before year's end.
But before the tax cut bills can become law, the House and Senate must pass matching versions of the legislation. And as leaders in each chamber grapple with difficult trade-offs on tax rates, deductions, and deficits, the House is making decisions the Senate won't accept and the Senate is doing the same to the House.
"We know we have more work yet to be done, but this is a historic step," House Ways and Means Committee Chairman Kevin Brady (R., Texas) said. "Will there be some differences? Of course, that's the legislative process. We welcome that."
Delaying the corporate tax rate reduction was one of many tough choices Senate leaders made as they tried to craft a bill that would lower taxes but also add no more than $1.5 trillion to the debt over 10 years. Still, further changes are expected next week as lawmakers begin debating the measure.
The bill currently does not comply with Senate rules that prohibit certain legislation from adding to the deficit after 10 years. This could force Republicans to make some of the tax cuts temporary.
Senate Republicans briefed White House officials on the one-year delay, and Trump administration officials said they would accept such a provision. To try to prod companies into expansion next year, the Senate bill would allow companies to immediately deduct all capital investments in 2018. Companies would be allowed to immediately expense these investments for five years.
In a move that could cause major tension in the House, the Senate bill would also prohibit Americans from deducting certain state and local taxes from their federal bills, a change that could raise taxes overall for Americans in high-tax states such as New York, New Jersey, California, Oregon, and Illinois.
The Senate's approach to state and local taxes is at odds with that of the House, where Republicans settled on a compromise - scrapping some of the state and local deduction but still allowing a deduction of up to $10,000 on property taxes - after GOP lawmakers from high-tax states revolted against an initial House plan to scrap the deduction entirely.
The proposal to eliminate that deduction in both the Senate and House bills would apply only to individuals and families, while businesses would still be allowed to claim the deduction. The discrepancy could further inflame Democrats, who have criticized the GOP tax cut effort as offering too many benefits for companies and stripping benefits away from individuals and families.
"Senate Republicans are doubling down on their gamble with middle-class family budgets to pay for massive handouts to big corporations and tax cheats," said Sen. Ron Wyden (D., Ore.).
Trump, traveling in Asia this week, called in to a meeting between White House officials and a collection of moderate Senate Democrats this week, hoping he could win their support for his tax effort. It's part of a broader push from the president to notch a major legislative achievement, a victory that has thus far eluded him with repeated attempts to repeal the Affordable Care Act failing and the infrastructure package he campaigned on still in its nascent stages.
The stakes are also high for Republicans in Congress, who on Tuesday night watched state and local Republicans get ousted in a string of election losses. Top GOP officials were split on whether the election losses would complicate tax reform.