Negotiators agreed to a number of other compromises as they reconciled differences between the House and Senate, the aide said. In a nod to complaints from high-tax states like New York, New Jersey, and California, taxpayers would be able to deduct up to $10,000 from either their state-and-local income or property taxes. Previous versions of the tax bill completely scrapped the SALT deduction for income taxes and capped it at $10,000 only for property taxes. The new cap for the mortgage-interest deduction would be $750,000, which represents a midpoint between the $500,000 cap in the House bill and the current maximum of $1 million, which the Senate had left unchanged.
And according to Bloomberg, Republicans sided with the Senate in maintaining popular deductions for medical expenses and graduate-student tuition. And in a victory for conservatives, the Affordable Care Act’s individual insurance mandate would be scrapped as in the Senate bill. Many other details remained unknown, including whether lawmakers will have to set the tax cuts for individuals to expire earlier than previously planned or raise revenue elsewhere to accommodate Senate budget rules. The Senate bill would force Congress to extend most of the personal tax cuts after six years. Republicans said they hoped to release text of the agreement by the end of the week.
The most surprising change, however, remains the lowering of the top rate. It’s particularly noteworthy because it doesn’t represent a compromise between the two competing proposals; rather, it’s an entirely new proposal. Neither the House nor Senate bill called for lowering the top rate that far. The House version kept it at 39.6 percent, while the Senate reduced it only to 38.5 percent.
The Republican aide said the last-minute switch was requested by House negotiators in exchange for accepting the Senate’s structure for treating “pass-through” businesses whose owners file their taxes as individuals. They’ll now be able to take a 20 percent deduction.
But the broader significance is the apparent resolution of a long-running debate within the party about how to tax the nation’s highest-earning individuals. For years, Republicans sided with supply-side economists who argued that reducing top marginal rates incentivized investment and hiring, and in turn would boost growth. In their original tax framework, party leaders called for returning to the top rate of 35 percent enacted under President George W. Bush. But under pressure from the Trump White House, the document said “an additional top rate may apply to the highest-income taxpayers to ensure that the reformed tax code
is at least as progressive as the existing tax code and does not shift the tax burden from high-income to lower- and middle-income taxpayers.”
Conservative activists recoiled at that language, complaining that Republicans were surrendering the argument over taxation to the progressive vision embodied for years by former President Barack Obama. And while the new agreement does not go as low as the 35 percent top rate of the Bush years, it is nonetheless a win for the right. “The goal is to help every American,” said Tim Phillips, president of the Koch brothers-backed advocacy group, Americans for Prosperity. “It’s not to pick and choose a few Americans to help, or certain groups.”