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GOP tax plan gains enough support to pass

The GOP adjusted the child tax credit to add more benefits for working families.

In this Sept. 26, 2017, file photo, Sen. Marco Rubio, R-Fla., speaks during a news conference on Capitol Hill in Washington.
In this Sept. 26, 2017, file photo, Sen. Marco Rubio, R-Fla., speaks during a news conference on Capitol Hill in Washington.Read morePablo Martinez Monsivais / AP, File

WASHINGTON – Congressional Republicans secured enough support Friday to pass their massive tax plan, a measure that would deliver a major legislative victory to President Trump and his GOP allies and make tax changes affecting nearly every American family and business.

Passage appeared certain after two critical holdouts, Sens. Marco Rubio, R-Fla., and Bob Corker, R-Tenn., said they would vote for the bill next week.

Rubio was the key piece of a complicated and shifting political puzzle that the White House and GOP leaders spent months trying to solve, as all Democrats vowed to oppose the bill and a handful of Republicans made strident demands.

The Florida Republican insisted on an expansion of the child tax credit in exchange for his vote, and GOP leaders relented, growing a benefit for working-class families. Corker's support was unexpected, as he had opposed an earlier version of the tax bill two weeks ago amid concerns about its additions to the deficit.

But Friday he said he viewed the bill as a "once-in-a-generation opportunity" that, combined with changes to immigration and trade policy, would help the economy.

The bill would push into law a $1.5 trillion tax package that was mostly written by Republicans behind closed doors and with little public debate.

If passed, the measure would represent Trump's first major legislative victory. It includes an overhaul of the tax code and a targeted change to the Affordable Care Act, the Obama-era health-care law Republicans have long sought to dismantle.

Under the tax plan, Americans would lose the personal exemptions that often dictate how much money is withheld from their paychecks. They would instead pay taxes through a new regime that exempts a higher level of income from taxation and then subjects much of the rest to lower rates. Many more Americans would have access to the child tax credit, but they would also face a new cap on the federal deduction for state and local tax payments.

On net, Republicans believe that the bill would lower most people's taxes. But many Americans – particularly those in high-tax states such as New York, New Jersey and California – would see their taxes go up.

The House and the Senate plan to vote on the bill next week, clearing the way for Trump to sign it into law. Many of its changes – lower rates and fewer deductions – would go into effect in January, though it would probably take some time for the economy to adjust.

The tax plan has enormous benefits for many businesses, with a permanent and sharp reduction in tax rates that Republicans promise would trigger more economic growth, new hiring and higher wages.

It also would change the tax system for households, temporarily lowering rates and creating new limits on deductions; this is expected to reduce taxes for most Americans but could still lead millions to owe the government more.

The plan would also add at least $1 trillion to the debt over 10 years, according to numerous economic forecasts, an issue that is likely to intensify policy debate in Washington into 2018 as both parties square off over how to deal with the deficit.

The bill was originally pitched as a sweeping tax cut for the middle class, but it changed over the course of several months as Republicans demanded a variety of alterations.

Sen. Ron Johnson, R-Wis., extracted more tax cuts for businesses whose owners file their taxes through the individual income tax code.

Sen. Susan Collins, R-Maine, and other East Coast Republicans demanded changes that would allow Americans to deduct up to $10,000 in state and local taxes, restoring some of the deduction after the Senate initially sought to scrap it entirely.

House Republicans tried to cap the mortgage interest deduction to the interest paid on up to $500,000 in new home loans, but they acquiesced eventually to a $750,000 cap – still lower than the current limit of about $1 million.

A number of GOP donors complained that the bill could push their taxes up, so Republicans agreed to a late change that would cut the top tax rate to 37 percent (down from 39.6 percent) for income above $600,000 for a married couple filing jointly. Earlier proposals called for consolidating the seven tax brackets into three, with a top rate of 35 percent, but the final deal stuck with seven brackets and a 37 percent top rate.

Corker's attempts to change the bill were rejected by GOP leaders – he had tried to put in place a mechanism that would limit the plan's impact on the debt if it didn't lead to the type of economic growth that Republicans had promised. He voted against the legislation in early December, but he was the only defection at the time, and Republicans were able to pass the bill without him.

Republicans had to soften a number of their proposed tax changes so that the bill fit within congressional budget rules.

Trump originally wanted to lower the corporate tax rate from 35 percent to 15 percent, but Republicans eventually settled on a 21 percent rate.

They also decided to make those tax cuts permanent, and lock in reductions for families and businesses only through 2025 to limit the cost. They have promised that a future Congress will extend those tax cuts, though the outcome for such a political decision is uncertain.

For many Americans, the tax bill could have an immediate impact.

It could alter the tax benefits of mortgages issued in just two weeks, and Americans could see more take-home pay in their paychecks by February.

The process of filing taxes each year would change and could lead Americans to shift how they allocate money. It could also lead companies to restructure, based on their income, investment and spending patterns.

The bill would repeal enforcement of a provision of the Affordable Care Act that penalizes many Americans if they don't have some form of health insurance. This change would take effect in 2019 under the bill.

Many of the changes made late in the negotiations would benefit businesses and the wealthy, but Rubio's last-minute demands pulled the package back a bit more toward its working-class roots.

Republicans had proposed to expand the child tax credit from $1,000 to $2,000, but the benefits formula they'd planned to use would have capped it for many low- and moderate-income families at $1,100. Rubio demanded that the credit be raised, and Republicans at first believed he would balk, in part because he voted for the Senate bill even after the party denied his effort to expand the child tax credit in that measure.

But when he threatened Thursday to block the bill and appeared to have the backing of Sen. Mike Lee, R-Utah, Republican leaders agreed to expand the tax credit up to $1,400 for those families. The credit would begin to phase out for households that earn more than $400,000.

Lee late Friday said that he looked "forward to reading the full text of the bill and, hopefully, supporting it."

Republicans had passed an earlier version of the bill through the Senate with a 51 to 49 vote, and losing two more senators could have proved fatal, though the GOP now appears firmly in control of the votes it needs.

Many of the changes to the tax code that Republicans initially sought were dialed back or removed.

They had proposed allowing multinational companies to bring cash held overseas back to the United States at a 12 percent tax rate, but they raised the rate to 15.5 percent in the final agreement as a way to generate more revenue.

They opted against imposing taxes that would have hit graduate students, and they did not strip away tax benefits for families who adopt children.

They had proposed to eliminate the estate tax and the alternative-minimum tax for individuals, but those changes proved too costly, and the final plan would exempt more families from these taxes but not get rid of them.

Democrats have blasted the bill, saying it would shower corporations with lower taxes at the expense of driving up the debt and giving only temporary and uneven benefits to the middle class. The tax rate cuts for individuals and households would expire after eight years, while most of the cuts for corporations would be permanent.

"It's daylight robbery," said House Minority Leader Nancy Pelosi, D-Calif. "And with every iteration, the GOP tax scam becomes even more cowardly, outrageous, dishonest, brazen theft from middle-class families, giving money from them to the richest people in our country and to corporations. It's a monumental con job."

On Friday evening, Democrats sent a warning to House Speaker Paul Ryan, R-Wis., about the bill's effects on the deficit. Under current law, a bill that would add to the deficit would trigger mandatory, across-the-board spending cuts, including to popular programs such as Medicare. Republican leaders have said they're looking to avoid having such spending cuts go into effect, but to pass legislation waiving the rules – known as "pay as you go" laws – Republicans could need Democratic votes.

In the letter to Ryan, House Democratic leaders said Republicans were responsible for passing such a waiver. In order to get Democrats' help, the leaders said, the majority would have to drop their bid to undermine the Affordable Care Act's insurance mandate and pledge not to make any cuts to Medicare benefits in 2018.

Public opinion polls show that Americans broadly think the bill favors corporations and the wealthy, but Republicans have persisted, with many predicting that it would lead to a surge in economic growth and buoy their prospects going into the 2018 midterm elections.

Republicans thought they had finished crafting the tax bill Thursday, but then Rubio threatened to block the measure if changes weren't made to expand access to the child tax credit.

Many of his colleagues were furious, but they relented and made Rubio's requested changes overnight. On Friday afternoon, Rubio spokeswoman Olivia Perez-Cubas said he would vote for the bill.

Rubio, in a series of Twitter posts, called the planned expansion of the child tax credit a "solid step toward broader reforms" that he wanted to continue working on in the months and years to come.