Trump Proposes to Cut Medicare and Spend Big on Wall, Defense

President Donald Trump will propose cutting entitlement programs by $1.7 trillion, including Medicare, in a fiscal 2019 budget that seeks billions of dollars to build a border wall, improve veterans’ health care and combat opioid abuse and that is likely to be all but ignored by Congress.

The entitlement cuts over a decade are included in a White House summary of the budget obtained by Bloomberg News. The document says that the budget will propose cutting spending on Medicare, the health program for the elderly and disabled, by $237 billion but doesn’t specify other mandatory programs that would face reductions, a category that also includes Social Security, Medicaid, food stamps, welfare and agricultural subsidies.

The Medicare cut wouldn’t affect the program’s coverage or benefits, according to the document. The budget will also call for annual 2 percent cuts to non-defense domestic spending beginning “after 2019.’

At a time when the prospect of rising annual budget shortfalls has spooked financial markets, the White House said in a statement — without explanation — that its plan would cut the federal deficit by $3 trillion over 10 years and reduce debt as a percentage of gross domestic product. Yet, in a break from a longstanding Republican goal, the plan won’t balance the budget in 10 years, according to a person familiar with the proposal.

The budget, to be released later on Monday, is unlikely to gain traction on Capitol Hill. Lawmakers routinely ignore the spending requests required annually from the executive branch. And Congress passed its own spending bill on Friday, including a two-year budget deal, which the president signed into law.

According to the summary, Trump will urge an increase in defense spending to $716 billion and a 2.6 percent pay raise for troops. He will request $18 billion to build a wall on the Mexican border, the summary indicates.

The White House also seeks $200 billion for the infrastructure proposal the administration plans to unveil alongside the fiscal year 2019 budget, as well as new regulatory cuts.

“This will be a big week for Infrastructure,” Trump said in a Twitter message Monday. “After so stupidly spending $7 trillion in the Middle East, it is now time to start investing in OUR Country!”

Monday’s document will outline proposed spending reforms the administration says would, if enacted, cut deficits over the next decade — even as recently passed tax legislation and spending caps threaten to drive future annual deficits above $1 trillion.

Trump May Struggle on $1 Trillion Pledge to Fix Crumbling U.S.

“Just like every American family, the budget makes hard choices: fund what we must, cut where we can, and reduce what we borrow,” Office of Management and Budget Director Mick Mulvaney said in a statement. “It’s with respect for the hard work of the American people that we spend their tax dollars efficiently, effectively, and with accountability.”

A year ago, Trump asked lawmakers to cut $3.6 trillion in federal spending over the next ten years, and identified deep cuts to domestic spending programs. Instead, lawmakers last week passed a two-year government funding deal that would boost military and non-defense spending by $300 billion over the next two years and add more than $80 billion in disaster relief.

But administration officials argue their proposals, dead on arrival though they may be, is still an important marker of the president’s legislative priorities.

Immigration Enforcement

The plan includes a heavy emphasis on immigration enforcement. Trump is requesting $782 million to hire 2,750 new border and immigration officers, and $2.7 billion to detain people in the country illegally. Trump is also asking for $18 billion over the next two fiscal years toward the goal of constructing a wall on the U.S. border with Mexico. That’s a key point of contention in the ongoing legislative battle over the fate of young people, known as “Dreamers,” who were brought to the country illegally as children.

The proposal also includes $13 billion in new funding to combat the opioid epidemic, which Trump has frequently cited as among his top domestic priorities. The administration would provide a $3 billion boost to the Department of Health and Human Services in the next fiscal year, and $10 billion in 2019.

The proposal takes “money that the Democrats want to put to these social programs and move it to things like infrastructure, move it to things like opioid relief, move it to things that are in line with the president’s priorities so that if it does get spent, at least it get spent to the right places,” Mulvaney said Sunday during an appearance on Fox News.

Boost for Veterans

Other elements include $85.5 billion in discretionary funding for veterans health services, education, and vocational rehabilitation, the OMB said on Sunday. It is not clear how much of that funding would represent an increase from current spending levels.

The budget also includes $200 billion in federal funds over the next decade that the White House says would spur $1.5 trillion in infrastructure spending through partnerships with state and local governments and private developers. That includes $21 billion over the next two years that the White House says would “jump start key elements of the infrastructure initiative.”

Trump will discuss the public works proposal on Monday with governors, mayors, state legislators and other officials, and he expects to meet with Congressional leaders from both parties at the White House on Feb. 14. The president plans to visit Orlando, Florida, on Feb. 16 for an infrastructure event, and he and cabinet members will also promote the plan at events around the U.S., officials said.

The White House said its initial approach is to offset the $200 billion in the budget for its infrastructure plan with spending cuts elsewhere, including from some transit and transportation programs the administration doesn’t think have been spent effectively. But Trump is open to new sources of funding, a senior White House official told reporters.

‘Robust’ Defense

The White House also didn’t detail how much money it wanted to devote to new spending on the military, but OMB said the proposal would provide “for a robust and rebuilt national defense.” In last year’s budget proposal, Trump called for a $52.3 billion boost for the Defense Department, while asking for deep cuts to the Environmental Protection Agency, State Department, and Department of Health and Human Services.

Mulvaney said this year’s documents — theoretical though they may be — would see those agencies targeted again for budget cuts.

“There’s still going to be the president’s priorities as we seek to spend the money consistently with our priorities, not with the priorities that were reflected most by the Democrats in Congress,” he told Fox News.

Trump on Friday complained on Twitter that in order to boost military spending, “we were forced to increase spending on things we do not like or want.”

The budget proposal assumes that the U.S. economy will ramp up over the next decade to his goal of 3 percent growth, according to an administration official on Friday who confirmed figures to be contained in Monday’s budget proposal. Economic growth is projected at 3.2 percent in 2019 and 2020.

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    Cuomo Seeks New York Tax Revisions to Thwart Federal Changes

    New York state would end income taxes on wage earners and make up the revenue with an employer payroll tax that’s federally deductible as part of a restructuring plan that Governor Andrew Cuomo is recommending to mitigate harmful effects of the new U.S. tax code.

    The new federal law limits deductions for individuals’ state and local taxes — raising levies 25 percent on all New Yorkers, no matter where they live, Cuomo said Tuesday. The federal changes could push residents and businesses out of state, the Democratic governor said as he presented a budget for the next fiscal year.

    “We’re doing everything we can to thwart the effects of the federal plan,” Cuomo said. “This is going to be the most difficult challenge that we’ve had to take on because it’s the most complicated, but I have no doubt that this is the fight of New York’s future.”

    Earlier this month, Cuomo said his administration would file a lawsuit seeking to repeal the new federal tax law, arguing that it discriminates against states with high local and state taxes. In his budget speech, Cuomo for the first time fleshed out his plan to further reduce the impact of the federal law by changing the way the state taxes wage earners’ income.

    In the tax-overhaul legislation that President Donald Trump signed last month, the Republican-controlled Congress cut income-tax rates on businesses and individuals across the board. But it also limited the deductions that individuals can take for state and local taxes — including income and property levies — to $10,000.

    That so-called SALT provision is widely viewed as an attack on Democratic-leaning states, which tend to have higher taxes. On Tuesday, Cuomo called the SALT cap “ an economic missile” aimed at New York, which he said pays $48 billion more to the federal government than it gets back each year. The changes will add $14 billion more to that tally this year, Cuomo said.

    New York’s ‘Penalty’

    “It targets New York with a penalty,” he said. Overall, he said 12 states would be targeted by limiting the SALT deductions to help pay for other cuts. “Coincidentally, they all happen to be Democratic.”

    In response, Cuomo said his proposal, the “New York State Taxpayer Protection Act,” would eliminate the state income tax on wage earners. Instead, the state would levy a wage tax on the employer. By doing so, the tax burden would shift from workers — who face new limits on their ability to deduct state income taxes — to employers, who could still take full deductions for such payroll taxes. The legislation would spell out which kinds of companies would be eligible for this treatment.

    “It may actually reduce the liability because it may bring the worker down to a lower income bracket,” Cuomo said. 

    The plan would apply only to wage earners. For other sources of income — including investment gains — the state would continue to run its personal income tax system, Cuomo said. The state Department of Taxation will spell out more details Wednesday, he said.

    Cuomo also said he intends to create state charitable funds for education and health care, which would allow individuals to get state tax credits for their donations. This would mitigate the impact of the federal tax plan on high-income earners, he said. California and New Jersey officials are considering similar proposals.

    The governor also proposed deferring tax credits for companies that receive $2 million or more in credits for one year, which would raise $300 million in state revenue, he said. The federal tax changes — which cut the corporate tax rate to 21 percent from 35 percent — will more than make up for that change, he said.

    “They weren’t expecting the tax cut; they got the tax cut,” Cuomo said. “It’ll more than offset the deferral of our credits.”

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      Trump Stretches Meaning of Deregulation in Touting Achievements

      One is a federal rule, initiated by former President Barack Obama, that removed Yellowstone’s grizzlies from the list of endangered species. Another repealed a grant program that hasn’t been funded since 2011.

      They are among the 67 so-called "deregulatory" actions President Donald Trump cited at a Dec. 14 event to tout "the most far-reaching regulatory reform in history” designed to unburden the U.S. economy from the shackles of government oversight. To illustrate the point, he cut a length of "red tape" attached to a mountain of paper.

      While the president has succeeded in undoing some major environmental and financial industry rules, a Bloomberg News review of the administration’s list found almost a third of them actually were begun under earlier presidents. Others strain the definition of lessening the burden of regulation or were relatively inconsequential, the kind of actions government implements routinely.

      "They are really undercutting their own credibility by putting out numbers that are not, quite frankly, very believable," said Cary Coglianese, a University of Pennsylvania law professor who is also director of the Penn Program on Regulation. “If I were advising them, I would have said put out something that’s credible."

      Read more: Regulation-Killing Push Falls Short of White House Boasts

      An earlier Bloomberg review of Trump administration claims about regulatory actions found that it had taken credit for killing or delaying rules that were pending and hadn’t gone into effect, including more than 100 that were already dead under Obama.

      There have been victories for the administration’s anti-regulatory push — such as Congress’s repeal of 15 regulations and the Federal Communications Commission’s vote this month to curb open-internet rules — but in most cases it has merely delayed implementing rules it opposes or begun the lengthy process of killing them. That means that, so far at least, many of the actions could easily be overturned by a successor.

      In one of his first actions as president, Trump ordered that two regulations be revised or eliminated before any new federal rule could be adopted. In order to follow the order, the White House’s Office of Information and Regulatory Affairs created a new label for rules or agency policy shifts it deemed were lowering burdens on society, calling them deregulatory.

      In the Dec. 14 press conference, Trump said the government had taken 67 such deregulatory actions through Sept. 30 — with an annual savings to society of $570 million — and had imposed just three new regulations. Instead of two for one, the ratio was 22 to one, he said.

      Earlier: Ex-Industry Lobbyists Win Top Jobs in Agencies They Once Fought

      “The never-ending growth of red tape in America has come to a sudden, screeching and beautiful halt,” Trump said at the event.

      The White House didn’t respond to multiple emailed requests for comment on the administration’s list of 67 deregulatory actions.

      While it isn’t nearly as sweeping as he would like, Clyde Wayne Crews, vice president for policy at the Competitive Enterprise Institute, which advocates for limiting the role of government, applauded Trump’s effort. U.S. law requires many steps before a new rule can be imposed or an old one revised, making it difficult for a new administration to take aggressive action so soon, Crews said.

      “In terms of what a president can do on his own, I think this is a good start,” he said.

      Related: Bureaucrats’ Revenge: Government Careerists Thwart Trump Agenda

      The administration is stepping up its efforts to undercut scores of rules that threaten the environment and public safety, says Amit Narang of the advocacy group Public Citizen, which supports regulatory protections.

      However, the claim about taking 67 deregulatory actions doesn’t always add up. 

      For one thing, it’s difficult to assess the White House’s assertion that the deregulatory actions taken through Sept. 30 have lowered the costs to society by a net $570 million a year, or $8.1 billion over time.

      The Office of Management and Budget, the White House arm that oversees regulatory actions, didn’t respond to questions from Bloomberg starting the day after the Dec. 14 announcement on how that figure was calculated. A review of the 67 regulations cited as helping drive down costs found many didn’t include cost-benefit calculations.

      "I’ll give them the benefit of the doubt that $570 million is potentially the cost savings, but they’re not being transparent on how much each action is saving and how it adds up to the $570 million," said Narang, a regulatory policy advocate at Public Citizen.

      Killing Obama’s Rules? Congress Has an Act for That: QuickTake

      The administration’s cost figures also ignore projected benefits for regulations it has blocked, distorting the actual impacts on society, said Denise Grab, a lawyer with the Institute for Policy Integrity at New York University’s School of Law. The institute has sued the Trump administration to block some of its regulatory actions. 

      One action on the list of 67 – it was actually counted twice because two agencies had to act separately — was an immigration rule the administration enacted in July that left two experts scratching their heads over how it could be considered deregulatory.

      The action, by the Department of Homeland Security and the Department of Labor, raised the cap on immigrants entering the U.S. to work in seasonal, non-agricultural jobs by as many as 15,000. The original H-2B visa program had been capped at 66,000.

      "It’s a stretch to call this deregulatory in any way," said Jessica Vaughan, director of policy studies for the non-partisan Center for Immigration Studies in Washington.

      Indeed, instead of lessening the regulatory burden, the regulation imposed additional requirements on businesses that wanted to participate in the expanded visa program, said Vaughan and Laura Reiff, a lawyer at Greenberg Traurig LLP and founder of the Essential Worker Immigration Coalition, which lobbies for immigration reform on behalf of businesses.

      At least 22 of the 67 deregulatory actions — from allowing imports of persimmons from Japan to the adoption of new electric vehicle safety rules — were adapted from efforts begun under Obama, often with little or no change, according to records.

      For example, the list included an Interior Department rule proposed by the Obama administration in June 2016 to allow Alaskan natives to use nonedible parts of migratory birds, like feathers, in handicrafts. It was completed this year, after a minor change.

      Likewise, the rule changing the status of grizzly bears around Yellowstone National Park was also begun under Obama.

      "They have no business taking credit for that," Chris Servheen, who helped craft the regulation before he retired as the Fish and Wildlife Service’s grizzly bear recovery coordinator, said. "It was all started long before the election."

      While the list of 67 actions runs up until Sept. 30, federal records show agencies have continued after that date to label actions as deregulatory even though they are just eliminating outdated or unnecessary proposals.

      For example, the Food and Drug Administration on Oct. 18 killed a proposed rule that would have prohibited the use of cow byproducts in the manufacture of drugs, according to records. The rule, originally proposed in 2007, was designed to protect against the spread of mad-cow disease, but other actions since then have protected cattle from the disease. Eliminating the rule will have no effect on the cattle industry.

      The proposed rule was dropped because it was “scientifically outdated and has been superseded by subsequent public policy,” the FDA said in an emailed statement.

      Under Trump and Administrator Scott Pruitt, the Environmental Protection Agency has taken a number of steps to rescind, delay or undermine environmental regulations issued under the previous administration. The agency put off the carbon-cutting Clean Power Plan and moved to repeal it. It delayed rules on methane leaks from oil and gas equipment, safety requirements on chemical plants and pollution in the water released by coal plants while it moved to rework and ease off on those Obama-era requirements.

      But of the 16 deregulatory actions taken by EPA on the administration’s list of 67, six were proposed under Obama and completed without major changes. It also included small actions that are typical under any administration and a few technical measures altering the paperwork that industry must complete to comply with EPA rules.

      For example, the list includes an EPA delay of a rule requiring makers of nanoscale compounds, microscopic particles increasingly used in drugs and electronic components, to disclose the known health effects of their products. The delay was just for three months, however, from May 12 to Aug. 14. When the requirements went into effect in August, the environmental group Natural Resources Defense Council praised them as a rare example of "some good news" from the EPA.

      In another case, Obama’s EPA in 2015 agreed to reconsider monitoring measures for phosphoric acid and phosphate fertilizer that had been set as part of a broader rule in 2014. The EPA proposed the industry-related changes last December, and Pruitt’s EPA ratified and finalized those standards in September.

      One action on the administration’s list scrapped a grant program providing federal funds to help pay for construction of public TV and radio stations. In 2010, the Obama administration ruled that money was available from other sources and ended the program. Congress followed suit and hasn’t funded the program since.

      “This is a nonsensical rule to include,” the University of Pennsylvania’s Coglianese said. “There’s no benefit to business getting rid of this rule. This is meaningless to have on this list.”

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        Trump Takes On Amazon Again, Urging Much More in Postage Fees

        President Donald Trump said the U.S. Postal Service should charge Inc. more to deliver packages, the latest in a series of public criticisms of the online retailer and its billionaire founder.

        The post office “should be charging MUCH MORE” for package delivery, the president tweeted Friday from his Mar-a-Lago estate in Florida, where he’s spending the holidays.

        “Why is the United States Post Office, which is losing many billions of dollars a year, while charging Amazon and others so little to deliver their packages, making Amazon richer and the Post Office dumber and poorer?” Trump told his 45 million followers.

        Trump regularly criticizes Amazon and its chief executive officer, Jeff Bezos, who also owns the Washington Post newspaper and is currently the world’s richest man. In August, Trump accused the company of causing “great damage to tax paying retailers,” even though the internet giant began collecting sales tax on products it sells directly in April.

        As with prior missives targeting the company, Trump’s message appeared to concern investors. Amazon’s stock had gained the past three days, but dropped 0.6 percent to $1,178.68 at 12:41 p.m. in New York.

        A sudden increase in postal service rates would cost Amazon about $2.6 billion a year, according to an April report by Citigroup. That report predicted United Parcel Service Inc. and FedEx Corp. would also raise rates in response to a postal service hike.

        Amazon didn’t respond to requests for comment.

        ‘Last Mile’

        Amazon regularly uses the Postal Service to complete what’s called the “last mile” of delivery, with letter carriers dropping off packages at some 150 million residences and businesses daily. It has a network of more than 20 “sort centers” where customer packages are sorted by zip code, stacked on pallets and delivered to post offices for the final leg of delivery.

        While full details of the agreement between Amazon and the Postal Service are unknown — the mail service is independently operated and strikes confidential deals with retailers — David Vernon, an analyst at Bernstein Research who tracks the shipping industry, estimated in 2015 that the USPS handled 40 percent of Amazon’s volume the previous year. He estimated at the time that Amazon pays the Postal Service $2 per package, which is about half what it would pay UPS or FedEx.

        Both shippers were up less than 1 percent Friday. Higher postal service rates would benefit private carriers by making their rates more competitive.

        But the postal service’s losses have little to do with Amazon and more to do with its large health-care obligations and the dwindling use of first-class mail. USPS charges some of the world’s lowest stamp prices.

        The president’s tweet also assumes that Amazon would be forced to pay if the Postal Service increased its rates for packages. But Amazon has been setting up its own shipping operations in the U.S. and elsewhere in the world to minimize costs.

        For more on Trump’s Twitter storms, check out this podcast:


        $62 Billion Loss

        The Postal Service reported a net loss of $2.1 billion in the third quarter of 2017 and has $15 billion in outstanding debt. The service has lost $62 billion over the last decade.

        USPS’s chief financial officer, Joseph Corbett, wrote in a post for in August that the service is required by law to charge retailers at least enough to cover its delivery costs.

        “The reason we continue to attract e-commerce customers and business partners is because our customers see the value of our predictable service, enhanced visibility, and competitive pricing,” he wrote.

        He said Congress should pass provisions of legislation introduced last year by former Representative Jason Chaffetz, a Utah Republican, that would allow the postal service to raise some rates and discontinue direct delivery to business customers’ doors.

        Amazon is experimenting with a new delivery service of its own that is expected to see a broader roll-out in the coming year. Under the program, Amazon would oversee the pickup of packages from warehouses of third-party merchants and delivery to home addresses.

        Despite the occasional anti-Amazon tweet, Trump is unlikely to target Amazon with any action because the company is creating jobs by building new warehouses around the country. It’s also expected to generate 50,000 new positions with its second headquarters, said James Cakmak, analyst at Monness Crespi Hardt & Co.

        “The interests of Amazon and the administration are largely aligned – even factoring the dislocation to retail – given the positive headline potential around new job creation with fulfillment centers and HQ2,” he said.

          Read more:

          Rates on Offshore Earnings Not Yet Finalized: Tax Debate Update

          President Donald Trump made what his staff members called a “closing argument” for tax-overhaul legislation Wednesday as congressional Republicans hammered out last-minute revisions to key provisions. Here are the latest developments, updated throughout the day:

          Rates on Offshore Earnings Not Yet Finalized (7:44 p.m.)

          The tax rates that U.S. companies would pay on an estimated $3.1 trillion in earnings they’ve stockpiled overseas haven’t been finalized yet — and they may change depending on the final bill’s revenue score, said Representative Tom Reed, a Republican member of the House Ways and Means Committee.

          The House voted last month to tax companies’ stockpiled offshore earnings at 14 percent for income held as cash, and 7 percent for less-liquid assets. The Senate’s bill this month set those rates at 14.5 and 7.5 respectively.

          As Republican leaders of the two chambers work on compromise legislation to send to Trump next week, many of the changes — including a lower rate for the highest-earning individuals and restoring or enhancing some tax deductions — would increase the bill’s revenue cost.

          Both the Senate and House measures were estimated to reduce tax collections by more than $1.4 trillion over 10 years.

          By delaying agreement on so-called “repatriation” rates for companies’ foreign profits, lawmakers may be preserving a way to help cover any increased costs, according to Henrietta Treyz, a managing partner and director of economic policy at Veda Partners.

          “Multinational corporations are maxed out and will start to sour on this tax bill if additional revenue is sought from their basket,” Treyz wrote in a note to clients.

          Under current law, companies can defer paying U.S. income taxes on their foreign earnings until they return, or “repatriate,” them to the U.S. The deferral provision has led companies to stockpile those earnings overseas. Lawmakers, who plan to cut the corporate income tax rate to 21 percent from 35 percent, intend to impose still lower rates on those accumulated earnings.

          They also intend to introduce new taxes on certain types of foreign income in the future, while largely ending the deferral system and moving toward a “territorial” system that would focus on companies’ domestic profits. — Anna Edgerton and Lynnley Browning

          McCain’s Health Poses Question on Senate Vote (5:32 p.m.)

          Republican Senator John McCain is away from the Capitol indefinitely while he undergoes medical treatment for “normal side effects” of his ongoing cancer treatment, his office says, a development that has potential to interfere with Republican leaders’ plans to approve their final tax legislation as early as Monday.

          McCain, who has missed Senate votes since Monday, is receiving care at Walter Reed Medical Center in Maryland, according to the statement. He was diagnosed with a form of brain cancer in July.

          “Senator McCain looks forward to returning to work as soon as possible,” said the statement. His office declined to comment further.

          Republicans in both chambers are still hammering out the details of a compromise $1.4 trillion tax-cut measure, and their drive to move it through Congress by year’s end could need McCain’s support. In the Senate, Republicans can only lose two votes under their narrow majority to approve the measure, which all Democrats oppose.

          Senator Bob Corker of Tennessee was the only Republican to oppose an initial version of the bill because he said it would increase U.S. budget deficits too much. While he says he’s undecided on a final bill, negotiators haven’t added anything geared toward addressing his concerns. GOP Senator Susan Collins of Maine says she’s waiting to decide if she will back the final version.

          McCain has supported the tax legislation. In July, he was the final “no” vote that dashed a GOP-only effort to replace Obamacare. — Laura Litvan

          Here’s Where the Agreed-Upon GOP Plan Stands (2:50 p.m.)

          Details of an agreement among House and Senate Republicans emerged Wednesday — including rate cuts for corporations, individuals and pass-through businesses. Here’s what tax negotiators have agreed to, according to lawmakers — and how the new plan differs from bills that passed both chambers earlier:

          Corporate Rate

          Joint Agreement: Cut the corporate rate to 21 percent from 35 percent beginning in 2018.
          House: Cut to 20 percent in 2018.
          Senate: Cut to 20 percent in 2019.

          Top Individual Rate

          Joint Agreement: Cut the top rate to 37 percent for the highest earners, down from 39.6 percent.
          House: Leave top rate at 39.6 percent.
          Senate: Cut top rate to 38.5 percent.

          Pass-Through Tax Breaks

          Joint Agreement: Provide a 20 percent deduction on pass-through business income, and extend that break to trusts as well as individuals.
          House: Tax such business income at a top rate of 25 percent, but service businesses like accounting and law firms wouldn’t be eligible. Provide a lower rate of 9 percent for some lesser-earning businesses.
          Senate: Provide a 23 percent deduction, with limitations related to taxable income and amount of wages paid.

          Corporate Alternative Minimum Tax

          Joint Agreement: Repeal it.
          House: Repeal it.
          Senate: Maintain it.

          Obamacare Individual Mandate

          Joint Agreement: Repeal it
          House: No action.
          Senate: Repeal it by zeroing out the tax penalty for individuals who don’t purchase health insurance.

          Mortgage Interest Deduction

          Joint Agreement: Cap it at loans of $750,000 — down from $1 million — for new purchases of homes.
          House: Cap it at loans of $500,000.
          Senate: No change.

          In addition, tax writers plan the following change, according to people familiar with the discussions:

          Individual State and Local Tax Deductions

          Joint Agreement: Limit combined deductions for state and local income taxes and property taxes to $10,000.
          House: Repeal deduction except for property taxes, capped at $10,000.
          Senate: Repeal deduction except for property taxes, capped at $10,000. — John Voskuhl

          McConnell Says ACA Mandate Repeal in Overhaul (2:14 p.m.)

          Senate Majority Leader Mitch McConnell said in a statement Wednesday that a tax overhaul will include the repeal of the mandate for individuals to buy insurance — a core part of the 2010 Affordable Care Act.

          The tax bill approved by the Senate on Dec. 2 included the individual mandate repeal, while the House bill didn’t. House Republicans mostly support repealing the mandate.

          The repeal of the mandate is seen as a win-win for most Republicans — smashing Obamacare, as they’ve promised to do for years, while raising some $300 billion to pay for tax cuts. The Congressional Budget Office has said the savings would result because the federal government would no longer have to provide subsidies for roughly 13 million people who would no longer be insured.

          Republican Senator Susan Collins of Maine voted to approve the Senate tax bill after she said McConnell had committed to support the passage of two pieces of legislation before the end of the year to mitigate the cost of health insurance premiums. Collins has said she’ll wait to see the final version of the tax legislation before deciding how to vote.

          Senator Bob Corker of Tennessee, the only Senate Republican to vote “no” for the tax bill, said he’s still undecided on a final vote. Still, he said that his concerns about tax cuts adding to the deficit haven’t been addressed at all.

          Corker confirmed a tax compromise will feature a 21 percent corporate rate and a top individual rate of 37 percent. He added that there is a long list of pay fors to offset the cost of a lower individual rate. — Erik Wasson and Allyson Versprille

          Tentative Deal Said to Repeal Corporate AMT (1:58 p.m.)

          A compromise that’s gathering steam among Senate and House Republicans is likely to include a full repeal of the corporate alternative minimum tax, according to three people familiar with the discussions.

          Senate Republicans included a last-minute change in the bill they approved Dec. 2 that would have preserved the corporate AMT at 20 percent. Business groups criticized the surprise move, which would have invalidated various tax breaks that the bill’s drafters intended to preserve.

          Also Wednesday, Trump said he’s receptive to setting the corporate tax rate at 21 percent — a change that’s also said to be part of the emerging deal. “We haven’t set that final figure yet, certainly 21 is a very great success,” Trump said. –Sahil Kapur, Jennifer Dlouhy and Kaustuv Basu

          State Income Break Said to Be Part of Deal (1:09 p.m.)

          A tentative deal reached by House and Senate lawmakers includes letting taxpayers deduct state income taxes in addition to property levies — up to a $10,000 cap, according to two people briefed on the details.

          The versions of the bills approved by the House and Senate just preserved the individual deduction for state and local property taxes — capped at $10,000 — but not for income taxes. House and Senate leaders, along with the White House, had previously signaled they were open to including state income tax deductions in the cap.

          Under the House and Senate agreement, pass-through entities would be able to deduct 20 percent of their business income, instead of 23 percent as originally proposed in the Senate bill approved Dec. 2, the people said. The top individual tax rate would also be lowered to 37 percent, said the people, who asked not to be named because the discussions are private. Combined with a lower individual income rate, the change would still provide roughly the same amount of relief for owners of the most lucrative pass-through businesses.

          The tentative accord comes as some Republican senators are still being briefed, and before the first open meeting of conferees at 2 p.m. on Wednesday.

          President Donald Trump said Wednesday afternoon that passage of the bill would be a “historic” victory and that Republicans are “very, very close” to an agreement as he met with congressional negotiators at the White House.

          “I think the conferees have reached a good place,” said Senator Thom Tillis of North Carolina regarding the tentative deal. — Sahil Kapur

          Negotiators Are Said to Reach Tentative Deal (12:13 p.m.)

          House and Senate negotiators have reached a tentative compromise for the tax overhaul, said a person familiar with the conversations who asked not to be named because the discussions are private.

          Lawmakers still need to get a cost analysis of their agreement, so it’s not yet definite, the person said.

          House Ways and Means Chairman Kevin Brady, who’s overseeing the House-Senate conference committee, said he couldn’t confirm that a tentative deal had been reached, adding there is still work to do.

          Representative Dave Reichert, a Washington Republican on the Ways and Means Committee, said there are still details to nail down.

          The House-Senate conference committee is scheduled to hold its first and only public meeting at 2 p.m. on Wednesday. Thus far, negotiations on the tax overhaul have taken place behind closed doors. — Kaustuv Basu and Erik Wasson

          GOP Plans to Set 21% Corporate Rate in 2018 (11:40 a.m.)

          Senate Majority Whip John Cornyn, a Texas Republican, said House and Senate lawmakers are “very close” on a deal that would meld their approaches to overhauling the tax code. “I think you’ll hear an announcement here relatively soon,” said Cornyn, the chamber’s second-ranking GOP leader.

          The current plan is to set a corporate rate of 21 percent, but make that rate cut effective in 2018 — a year earlier than the Senate’s measure would have — according to a Republican official who asked not to be named because the discussions are private.

          Republicans in both chambers had approved cutting the corporate rate to 20 percent from the current 35 percent, but the House plan would make that move in 2018.

          Lawmakers are also leaning toward keeping the estate tax, the official said. Both chambers called for doubling the exemption limits for the tax, but the House bill calls for its full repeal in 2025. Negotiators are also planning to set a top individual tax rate of 37 percent and cut the mortgage deduction limit to $750,000 from $1 million, according to the official.

          Republicans are trying to get final legislation hammered out in time for President Donald Trump to sign it next week — giving the party a long-sought major policy victory before the end of 2017.

          An announcement of a deal between the House and Senate is likely Wednesday, according to a source familiar with the discussions who asked not to be named because the talks are ongoing.

          The Senate’s top Democrat, Chuck Schumer of New York, on Wednesday called for Majority Leader Mitch McConnell to delay a vote on the tax bill until Democrat Doug Jones, who won a special election in Alabama Tuesday, could be seated. That would take the GOP’s majority down to 51-49.

          GOP Senate leaders have reiterated their desire to send the bill to Trump next week. — Steven T. Dennis, Ari Natter, Laura Litvan

          GOP Eyes Cut for Top End, 21% Corporate Rate (4:00 a.m.)

          Million-dollar earners would get a bigger tax break, and corporations would get a slightly smaller one under changes Republican tax writers were discussing behind closed doors Tuesday — changes that would revamp their overhaul legislation as it nears final votes next week.

          Lawmakers and congressional staffers worked into the night Tuesday, amid discussions of setting the top individual tax rate at 37 percent — down from the current 39.6 percent and lower than the Senate’s plan to set the top rate at 38.5 percent. Discussions of that potential boon for the highest earners — confirmed by two people familiar with the talks — come as Trump plans to pitch the bill’s benefits for American families during a White House speech on Wednesday.

          Despite strong support for the tax plan among Republican lawmakers, who are rushing to complete the bill for Trump’s signature next week, polls show the plan is unpopular with Americans amid perceptions that the tax changes would favor the wealthy. Administration officials say the polls have been skewed and they predict the plan’s popularity would grow as Americans focus on the legislation’s specifics.

          But lawmakers were considering changing those details on Tuesday as people familiar with the secret negotiations described various potential revisions:

          • Cutting the top individual income tax rate to 37 percent, which would help address top earners’ complaints about losing certain tax deductions, but could also damage claims by Trump and others that the measure is mostly aimed at middle-class relief.
          • Setting the corporate tax rate at 21 percent, instead of the 20 percent proposed in both the House and Senate bills. The current corporate rate, 35 percent, is the highest among industrialized economies. Trump had initially sought a 15 percent rate, then said he wouldn’t accept any rate higher than 20 percent. But earlier this month, he suggested he was open to a number as high as 22.
          • Adopting the Senate’s general method of cutting tax rates for partnerships, limited liability companies and other so-called pass-through businesses, but revising the particulars. The Senate bill would create a 23 percent deduction for pass-through business income, but a potential compromise would cut that deduction to 20 percent. Combined with a lower individual income rate, the change would still provide roughly the same amount of relief for owners of the most lucrative pass-through businesses.
          • Capping the mortgage-interest deduction at loans of $750,000 or less. The House bill proposed a cap of $500,000. The Senate bill left the current $1 million cap in place.

          Negotiations remained fluid Tuesday night, and details were subject to change. Final compromises may emerge Wednesday ahead of a planned public meeting of a joint House and Senate conference committee that’s charged with preparing the final, compromise legislation.

          “If everything works right,” the Senate would vote on the final package Monday, the House would vote Tuesday and Trump would sign the bill by Wednesday of next week, said House Majority Leader Kevin McCarthy of California.

          Trump is scheduled to host members of the conference panel at the White House for lunch on Wednesday before the president’s speech, Trump spokeswoman Lindsay Walters said.

          What to Watch on Wednesday

          • Trump’s lunch meeting with conference committee participants may shed light on the latest details.
          • The House-Senate conference committee will hold its first and only public hearing at 2 p.m.
          • The president’s speech in the grand foyer of the White House takes place at 3 p.m. Trump will highlight five American families to show how they would benefit from the tax overhaul.
          • Sticking points that remain between the House and Senate tax bills include whether to retain or repeal the individual and corporate alternative minimum taxes and the estate tax, whether to preserve a deduction for large medical expenses and how to tax pass-through businesses. Resolutions could emerge prior to the open meeting.

          Here’s What Happened on Tuesday

          • Democrat Doug Jones won the Alabama Senate race, an outcome that will reduce the GOP’s advantage in the chamber to just 51 seats once Jones will be sworn later this month or in early January. Republican leaders — who need at least 50 votes to win passage — say they’ll get their tax bill approved before Jones takes office.
          • Republican Senator Marco Rubio of Florida criticized his party for considering a cut in the top individual tax rate to 37 percent as part of its tax-overhaul plan — while setting the proposed corporate rate slightly higher than planned to cover the revenue loss. Rubio, along with Republican Senator Mike Lee of Utah, had proposed expanding the child tax credit earlier this month, and paying for it by setting the corporate rate at 20.94 percent.

          — Anna Edgerton, Sahil Kapur, Erik Wasson, Allyson Versprille, Laura Davison and Kaustuv Basu

            Read more:

            Trump Says Republican Tax Bill Essentially Repeals Obamacare

            President Donald Trump claimed victory for “essentially” repealing Obamacare in the Republican tax bill that cleared the House on Wednesday.

            The bill eliminates a tax penalty for Americans who don’t carry health insurance, a pillar of the Affordable Care Act, while leaving the law’s other elements intact. Insurers have warned that eliminating the requirement will cause them to raise premiums. Healthy people will have less incentive to sign up for coverage, leaving insurers with a sicker pool of customers overall, the companies and many economists and health policy experts say.

            “The individual mandate is being repealed. That means Obamacare is being repealed,” Trump told reporters at the White House on Wednesday. “We have essentially repealed Obamacare.”

            The nonpartisan Congressional Budget Office estimated last month that repealing the individual mandate would lead to 13 million more uninsured in 2027, and that premiums in the individual market would increase by about 10 percent. Lifting the penalty saves the government $338 billion over the next decade, the CBO said, because some of those who go uninsured would have gotten subsidized coverage. Lawmakers used that savings to reduce taxes.

            Removing the individual mandate doesn’t undo other essential elements of Obamacare. The law still requires insurers to sell policies to sick people at the same prices as healthy people, and provides subsidies for low-income families to make health plans more affordable.

            Trump also boasted that he successfully downplayed the provision to avoid media coverage of the change.

            “We didn’t want to bring it up. I told people specifically ‘be quiet with the fake news media because I don’t want them talking too much about it,’” Trump said. “But now that it’s approved I can say: the individual mandate on health care, where you had to pay not to have insurance — think of that one, you pay not to have insurance — the individual mandate has been repealed.”

            Trump said Republicans will “come up with something that will be much better” to replace the mandate. Republican legislation to replace much of the Affordable Care Act failed earlier this year.

            The true importance of the mandate has been debated by economists and policymakers, and the CBO has said it is revising how it calculates the effect. S&P Global Ratings suggested last month that rolling back the penalty would save less than expected, and increase the number of uninsured by only 3 million to 5 million. About 6.5 million people paid an average penalty of $470 for not having insurance in 2015, according to IRS data.

              Read more:

              Americas Inequality Machine Is Sending the Dow Soaring

              The Great Recession is a speck in the rear-view mirror for America’s financial markets. They’ve advanced far beyond pre-crisis levels. In fact, Goldman Sachs says you can go back a century before 2008, and still not find a “bull market in everything” like today’s.

              If the real economy had roared back the same way, Donald Trump might not be president. Instead, it’s been a grind. While unemployment is near a two-decade low, wages have grown slowly by past standards. They’re nowhere near keeping pace with the asset-price surge.

              Elected on a promise of better jobs and pay, Trump is about to pull the most powerful lever any government has for firing up the economy: fiscal policy. By slashing taxes on corporate profits, its authors say, the Republican plan will unleash the animal spirits of American business — and everyone will benefit.

              A rising tide does lift all boats — but nowadays, in the U.S., not equally. Under both parties, recoveries have become increasingly lopsided. The current one has helped millions of people find work; it’s also benefited asset-owners far more than people who trade their labor for a paycheck. Income distribution, already the most unequal in the developed world, is getting worse. And that’s starting to influence everything from America’s spending habits to its elections.

              “The story of our time is polarization — by party, by class and by income,” said Mark Spindel, founder and chief investment officer at Potomac River Capital in Washington, and co-author of a 2017 book about the Federal Reserve. “I don’t see anything in the tax bill to make that any better.’’

              The Fed’s post-2008 toolkit included massive purchases of financial assets, which supported a liftoff on the markets but took time to trickle through to the real economy. Trump’s tax critics say his plan will have a similar effect, because companies will spend the windfall on share buybacks or dividends, instead of job-creating investments. Plenty of executives say that’s exactly what they’ll do.

              Bank of America’s most recent buyback program totals $18 billion. Chairman Brian Moynihan championed the tax proposal this month. “It’s good for corporate America, and it’s good for us,” he said.

              There was an echo there of one of the American business world’s classic slogans. As applied to the Trump tax cuts, it’s highly misleading, according to Nell Minow, vice chair of ValueEdge Advisors.

              Good for U.S.?

              This isn’t a case of “what’s good for General Motors is good for the U.S.,” said Minow, who’s dedicated her career to pushing corporations toward long-term investments in people and businesses. “In my list of the top 100 things companies should do for sustainable wealth creation, buybacks would be number 100.”

              Companies in the S&P 500 Index bought $3.5 trillion of their own stock between 2010 and 2016, almost 50 percent more than in the previous expansion. The pace has slowed in the last two years. The tax bill could kickstart it.

              Buybacks have fueled the stock rally (there’s disagreement about how big a part they played). And the rally’s biggest benefits go to the richest. On Twitter last week, Trump invited his followers to check their swelling retirement accounts. Only about half the country’s households have any such nest-egg.

              Soaring markets helped the top 1 percent of Americans increase their slice of the national wealth to 39 percent in 2016, according to the Fed’s Survey of Consumer Finances. The bottom 90 percent of families held a one-third share in 1989; that’s now shrunk to less than one-quarter.

              Republicans are gambling that they can run the economy so hot that companies will hire more workers, and eventually boost their wages. There’s a strong argument that the private sector can train them better than government programs can.

              ‘Benefits Everybody’

              “The more growth we have, the more that benefits everybody,” said Ike Brannon, a former Bush administration Treasury official who’s now president of Capital Policy Analytics, a consulting firm. “It forces businesses to train people at the fringes.” He points to the late 1990s, when growth averaged more than 4 percent and the poorest one-fifth of households saw substantial income gains.

              Looming in the background then was a technology-stocks bubble. It burst in March 2000, plunging the economy into recession. What happened next is telling — it illustrates the perverse asymmetry of bubbles. In the following three years, those poorest households saw their incomes fall more than twice as much as their richest counterparts.

              The pattern was repeated after the even bigger housing crash of late 2007. Today, even after an increase of more than 9 percent over two years, incomes at the bottom are short of pre-crisis peaks, while higher earners have comfortably surpassed them.

              Japan, which is also preparing corporate tax cuts, plans to make them available only to businesses that increase spending on wages and investment. In the U.S., companies are flush with cash but they’re using it to buy more customers via mergers, or reward capital through dividends, according William Spriggs, chief economist at the AFL-CIO, the country’s biggest labor union group.

              American workers won’t put up with any more business cycles that yield them few gains, he says. “This is the last time they can get away with it, because the backlash is going to be huge.”

              In the end, the trend toward inequality amounts to capitalist suicide, Spriggs argues. Companies need demand, which requires rising wages so that workers can afford goods and services. “Businesses can’t create themselves, they respond to general growth in income,” he said. “Inequality chokes off business development.”

              Support for that kind of argument is surfacing in unlikely quarters.

              The International Monetary Fund used to be so entwined with American government thinking that its preferred market-friendly recipe was known as the Washington Consensus. Now, the Fund is cautiously backing redistributive measures — falling foul of the Trump administration in the process.

              In October, the IMF said rich countries can share their prosperity more evenly, without sacrificing growth, by shifting more of the tax burden onto high earners. It warned that “excessive inequality can erode social cohesion, lead to political polarization, and ultimately lower economic growth.”

              ‘Broken System’

              The U.S. is already experiencing some of those strains.

              During last year’s election campaign, both major parties effectively broke in half. In both cases, an outsider candidate scored unexpected wins by running against the party establishment, and railing at an economic system they said was rigged against ordinary Americans.

              Self-described socialist Bernie Sanders surprised pundits by mounting a serious challenge in the Democratic contest. Trump won his party’s nomination and the presidency. He told voters he had experience on the buy-side of American politics, having paid for favors from both parties, and so was well-placed to fix a “broken system” dominated by corporate lobbyists.

              Now, Trump is about to hand corporations — which are already making high profits by historical standards — a giant tax cut. The bill “addresses problems we don’t have, and makes existing problems worse,” said Alan Krueger, an economics professor at Princeton University. “Especially the deficit, inequality, health care, and infrastructure investment.”

              If the tax changes end up helping markets most, they’ll be widening a gap noted last month by JPMorgan Chase’s chief investment strategist, Jan Loeys. There’s not much sign of “economic overheating,” which happens when companies start spending more on wages and other inputs, Loeys argued. “Financial overheating, in contrast, is well advanced,” he wrote. “It merits monitoring a lot more closely for signs of bubble-trouble.” 

              Even Trump’s Treasury has flagged the danger. Last week, the Office of Financial Research made its annual report to Congress on the vulnerabilities of the financial system. It was sanguine about most of them, from inflation and bank solvency to debt levels.

              But the agency, which color-codes its assessments, did see one major threat — from market risk. That gauge is at red alert.

                Read more:

                Senate Passes Tax-Cut Bill in Milestone Move Toward Overhaul

                Senate Republicans narrowly approved the most sweeping rewrite of the U.S. tax code in three decades, slashing the corporate tax rate and providing temporary tax-rate cuts for most Americans.

                The 51-49 vote — achieved just before 2 a.m. Saturday in Washington and only after closed-door deal-making with dissident senators — brings the GOP close to delivering a much-needed policy win for their party and President Donald Trump. 

                After the vote, Trump said on Twitter that he looks forward to signing a final bill before Christmas. Vice President Mike Pence tweeted that a pre-Christmas tax cut would be a “Middle-Class Miracle!”

                Before it goes to Trump, lawmakers will have to resolve differences between the Senate bill and one the House passed last month, a process that could begin Monday. Although both versions share common top-line elements, negotiations on individual provisions inserted to win votes, particularly in the Senate, may be protracted and difficult. The final product will end up being a central issue in the 2018 elections that will determine control of Congress.

                “We’re going to take this message to the American people a year from now,” Senate Majority Leader Mitch McConnell said after the vote.

                Speaking in New York on Saturday, Trump also predicted the tax package would be a winner for Republicans in the 2018 midterm elections. “We got no Democrat help and I think that’s going to hurt them in the election,” Trump said at a fundraising event.

                Read about the sticking points between Senate, House bills.

                Both the House and Senate measures would cut the corporate tax rate to 20 percent from 35 percent — though the Senate version would set that lower rate in 2019, a year later than the House bill would. Also, the Senate bill, unlike the House version, would provide only temporary tax relief to individuals, ending tax cuts for them in 2026. Both bills are expected to add more than $1.4 trillion to the federal deficit over 10 years, before accounting for any economic growth.

                Senator Bob Corker of Tennessee, who had cited concerns over the bill’s effects on federal deficits, was the only Republican dissenter. McConnell rejected revenue scores that suggested the bill’s tax cuts would add to the deficit. He predicted it would be a “revenue producer” by stimulating economic growth. Congress’s official tax scorekeeper this week said otherwise.

                The House and Senate bills also align on the contentious issue of individual deductions for state and local taxes: They’d eliminate all but a deduction for property taxes, which would be capped at $10,000.

                Mortgage Interest

                But they differ on the home mortgage-interest deduction; the House bill would restrict that break to loans of $500,000 or less with regard to new purchases of homes. The Senate legislation would leave the current $1 million cap in place.

                They also differ — narrowly — on the tax rates they’d apply to multinational companies’ accumulated offshore earnings. The House bill would tax those profits at 14 percent for earnings held as cash and 7 percent for less-liquid assets. The revised Senate bill contains a lengthy section that has no direct mention of the rates, but a person familiar with the Senate plan said they’d be 14.5 percent for cash and 7.5 percent for less-liquid assets.

                Senate Republican leaders muscled the sweeping legislation through the chamber less than two weeks after releasing the bill draft. Many GOP lawmakers, including Corker and Lindsey Graham of South Carolina, have expressed concerns that the party has little to show so far before next year’s congressional elections, after the collapse of an Obamacare repeal earlier this year and no action on issues ranging from immigration to infrastructure.

                ‘Working Families’

                Trump expressed gratitude to McConnell and Finance Committee Chairman Orrin Hatch for steering the measure through the Senate.

                “We are one step closer to delivering MASSIVE tax cuts for working families across America,” Trump wrote on Twitter.

                Republicans were able to bring the legislation to a vote using Senate rules that allowed them to approve it with a simple majority, therefore without any Democratic support. The GOP controls just 52 votes in the chamber, eight shy of what’s typically needed to move controversial measures that draw delaying tactics by opponents.

                Narrow Majority

                That narrow majority made it important for Senate leaders to try to hold every member’s vote; moderate Senator Susan Collins of Maine used that leverage to secure various concessions, including an agreement to enhance an individual deduction for large unreimbursed medical expenses through the end of next year. The House bill would eliminate that tax break.

                Democrats decried the bill’s deficit impact and complained they were shut out of the process to help draft the measure. They cited research showing that the legislation primarily benefits the nation’s highest earners and business owners, and will bleed federal revenues in a way that hurts domestic programs.

                “At a time of immense inequality, the Republican tax bill makes life easier on the well-off and eventually makes life more difficult on working Americans, exacerbating one of the most pressing problems we face as a nation — the yawning gap between the rich and everyone else,” said Minority Leader Chuck Schumer of New York during debate on the bill.

                ‘Back of a Napkin’

                Schumer noted that a set of last-minute revisions to the bill changed it in ways that had yet to be analyzed by the Joint Committee on Taxation, Congress’s official scorekeeper for the effects of tax legislation. “Is this really how Republicans are going to rewrite the tax code? Scrawled like something on the back of a napkin?”

                McConnell said the bill, the first text of which was introduced on Nov. 20, went “through the regular order.” He dismissed complaints like Schumer’s. “You complain about process when you’re losing,” McConnell said.

                Attention now shifts to a House-Senate conference committee — a specially appointed, temporary panel that will be charged with hashing out the differences in the bills and preparing a final version for both chambers to consider. Party leaders will select a small group of lawmakers, likely from the House and Senate tax-writing panels in each chamber, who would then be approved by each chamber.

                That work could start as early as Monday, with many high-stakes issues to be worked through. The deadline of Dec. 31 is an artificial one, though — aimed partly at securing a victory well in advance of the 2018 congressional elections. Republicans would have until the end of 2018 before they lose their ability to clear final passage in the Senate without a filibuster.

                Expensing Provision

                Both bills share some key central elements: They both almost double the standard deduction for individual taxpayers while eliminating personal exemptions. They both allow companies to fully and immediately deduct the cost of their spending on equipment for five years. But the Senate version would slowly step down the expensing provision after the five-year period — a feature that the House bill doesn’t provide for.

                Yet there are many differences — ranging from the taxation of business income to the amount set for the child tax credit — and Senate negotiators may have the upper hand during talks. That’s because the wafer-thin two-vote majority in the Senate will make it harder to usher a final bill back through that chamber.

                The House bill would consolidate the current seven individual tax brackets to four, leaving the top tax rate at 39.6 percent. The Senate bill would have seven brackets — with lower rates, and a top rate of 38.5 percent. Studies have shown that many of the tax bill’s benefits would go to the highest earners — and some middle-class taxpayers might actually pay more — a finding that could impact the House-Senate talks.

                The Senate bill includes a repeal of Obamacare’s mandate that most Americans have health insurance or pay a penalty. The House bill does not.

                Pass-Through Businesses

                Senators approved a 23 percent tax deduction — subject to certain limitations — on business income earned from partnerships, limited liabilities and other so-called pass-through businesses. The House version would create a 25 percent tax rate for such business income — with restrictions on which businesses could qualify. Small businesses would get extra relief under the House legislation as well.

                The House bill would also eliminate the estate tax, while the Senate version would limit the tax to fewer multimillion-dollar estates, but leave it in place. And after 2025, the limits would lift.

                Under current law, the estate tax applies a 40 percent levy to estates worth more than $5.49 million for individuals and $10.98 million for married couples. The Senate bill would temporarily double the exemption thresholds. The House bill would double the exemption thresholds, and then repeal the tax entirely in 2025.

                  Read more:

                  Democrats Pull Out of Trump Meeting After His Shutdown Tweet

                  The top two Democratic leaders in Congress pulled out of a meeting with President Donald Trump on Tuesday after he tweeted that a budget deal with them was unlikely, raising the odds that the U.S. government will partially shut down next week.

                  Trump proceeded with the meeting anyway, calling reporters into the White House Roosevelt Room to see name cards for House Minority Leader Nancy Pelosi and Senate Minority Leader Chuck Schumer at empty seats. The president was joined by House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell.

                  Trump blasted the Democratic leaders as “all talk and no action” and said he wasn’t surprised they didn’t come to the session. He said he expected Pelosi and Schumer would soon meet with him, but if there’s a shutdown, “I would absolutely blame the Democrats.”

                  The Democratic leaders said after Trump’s tweet that they’d skip a “show meeting” at the White House and instead ask for a meeting with Ryan and McConnell.

                  “Given that the President doesn’t see a deal between Democrats and the White House, we believe the best path forward is to continue negotiating with our Republican counterparts in Congress instead,” they said in a joint statement.

                  Pelosi later criticized the president on Twitter, saying he was engaging in political stunts.

                  “@realDonaldTrump now knows that his verbal abuse will no longer be tolerated. His empty chair photo opp showed he’s more interested in stunts than in addressing the needs of the American people. Poor Ryan and McConnell relegated to props. Sad!,” Pelosi tweeted.

                  Trump sparked the dispute Tuesday morning.

                  “Meeting with ‘Chuck and Nancy’ today about keeping government open and working,” Trump said on Twitter. “Problem is they want illegal immigrants flooding into our Country unchecked, are weak on Crime and want to substantially RAISE Taxes. I don’t see a deal!”

                  ‘Urgent Issues’

                  “It’s disappointing that Senator Schumer and Leader Pelosi are refusing to come to the table and discuss urgent issues,” White House Press Secretary Sarah Huckabee Sanders said in a statement. “The President’s invitation to the Democrat leaders still stands and he encourages them to put aside their pettiness, stop the political grandstanding, show up and get to work. These issues are too important.”

                  McConnell and Ryan echoed the White House in a joint statement.

                  “We have important work to do,” they said. “There is a meeting at the White House this afternoon, and if Democrats want to reach an agreement on these issues, they will be there.”

                  If Democrats and Republicans do not reach a deal on spending by Dec. 8, the federal government could face a partial shutdown.

                  Investors’ response to the dispute was muted. The dollar dipped after the Democrats’ statement and Treasuries extended gains, with the 10-year yield reaching the 2.31 percent level, signaling some movement to safety. But the U.S. stock market’s benchmark Standard & Poor’s 500 index continued to rise as investors placed greater emphasis on remarks made by Federal Reserve Chairman nominee Jerome Powell which analysts interpreted as favorable to bank stocks.

                  ‘Dreamers’ Deal

                  Some Democrats have called for any year-end spending deal to include legislation to codify an Obama administration policy protecting from deportation young undocumented immigrants brought to the country as children. Trump, who announced in September he was ending the Obama program, has said any deal protecting the so-called “Dreamers” should be paired with funding for a border wall and legislation that would reduce legal immigration.

                  The Dec. 8 deadline was set in a deal Schumer and Pelosi struck with Trump — against the wishes of Ryan and McConnell — to avoid a government shutdown and debt default in September. They agreed to fund the government at current levels and suspend the debt limit for three months.

                  Since that deal was struck, Congress has focused mostly on a tax overhaul and has made little progress reaching a spending deal to keep the government open. Other issues have also piled up, including the fate of cost-sharing subsidies that help defray deductibles and co-payments for low-income people with Obamacare insurance policies. Trump has stopped reimbursing insurers for the subsidies.

                  The negotiations also include efforts to lift legislative caps on military spending, raise the debt limit, provide more funding for disaster assistance, and extend a children’s health insurance program and an intelligence surveillance program.

                  Several of those issues face year-end deadlines and may end up in a huge spending plan requiring votes from both Republicans and Democrats.

                  Congressional Talks

                  The Trump administration does not want to include immigration as part of the year-end spending deal to keep the government open, White House spokeswoman Sarah Huckabee Sanders said on Monday.

                  “We hope that the Democrats aren’t going to put our service members abroad at risk by trying to hold the government hostage over partisan politics, and attaching that,” Sanders told reporters on Monday.

                  A Senate Democratic leadership aide said that Democratic leaders were able to reach a deal on a spending plan in April with Republicans in Congress and not the White House. They are looking to do that again.

                  In recent talks on a year-end budget deal, Democrats and Republicans in Congress have discussed a possible agreement to lift budget caps established under an Obama-era debt deal. The agreement would add $200 billion in spending above the caps over two years. However, the two sides haven’t agreed to divide the money equally between defense and non-defense programs, which Democrats want. Republicans are pushing for more defense spending than domestic spending.

                    Read more:

                    The GOP Tax Plan Is Entering Its Make-or-Break Week

                    The $1.4 trillion item on President Donald Trump’s wish list — a package of tax cuts for businesses and individuals that he has said he wants to sign before year’s end — is headed into the legislative equivalent of a Black Friday scrum next week.

                    Senate Republican leaders plan a make-or-break floor vote on their bill as soon as Thursday — a dramatic moment that will come only after a marathon debate that could go all night. Democrats are expected to try to delay or derail the measure, and the GOP must hold together at least 50 votes from its thin, 52-vote majority in order to prevail.

                    Their chances improved this week when Republican Senator Lisa Murkowski of Alaska said she’ll support repealing the “individual mandate” imposed by Obamacare — a provision that Senate tax writers are counting on to help finance the tax cuts. Murkowski had earlier signaled some reservations about the provision; and her support was widely viewed as a positive sign for the tax bill’s chances.

                    Trump is scheduled to address Senate Republicans at their weekly luncheon Tuesday afternoon on taxes and the legislative agenda for the rest of the year, according to a statement from Senator John Barrasso, chairman of the Senate Republican Policy Committee. 

                    The White House previously announced that the president would talk with Republican and Democratic congressional leaders at the White House the same day about an agreement on spending to keep the government open after funding expires on Dec. 8. David Popp, a spokesman for Senate Majority Leader Mitch McConnell, and Drew Hammill, a spokesman for House Democratic leader Nancy Pelosi, both said that meeting is still on the schedule.

                    If the tax bill clears the Senate — a step that’s by no means guaranteed — lawmakers in both chambers would have to hammer out a compromise between their differing bills, a process that presents potential pitfalls of its own. For now, though, much of the Senate’s attention will focus on its legislation’s price tag.

                    Three GOP senators — Bob Corker of Tennessee, Jeff Flake of Arizona and James Lankford of Oklahoma — have cited concerns about how the measure would affect federal deficits. Independent studies of the legislation have found that — contrary to its backers’ arguments — its tax cuts won’t stimulate enough growth to pay for themselves. Both the Senate bill, and one that cleared the House earlier this month, would reduce federal revenue over a decade by roughly $1.4 trillion, according to the Joint Committee on Taxation.

                    On Wednesday, a report from the Penn Wharton Budget Model at the University of Pennsylvania said the bill would reduce federal revenue in each year from 2028 to 2033. That finding would mean it doesn’t comply with a key budget rule that Senate Republican leaders want to use to pass their bill with a simple majority over Democrats’ objections.

                    Budget Rule

                    In essence, that rule holds that any bill approved via that fast-track process can’t add to the deficit outside a 10-year budget window. The JCT has already found that the Senate bill would generate a surplus in its 10th year because it has set several tax breaks for businesses and individuals to expire.

                    But JCT hasn’t yet weighed in publicly on the revenue effects in subsequent years. Senate GOP leaders have expressed confidence that their proposal will satisfy the rule ultimately.

                    Another potential stumbling block stems from the fact that Congress is trying to act on complex tax legislation under a tight, self-imposed timeline in order to deliver on promises from Trump, House Speaker Paul Ryan and McConnell.

                    For example, Republican Senator Ron Johnson of Wisconsin has said he can’t support the current Senate bill because it would give corporations a tax advantage — a large rate cut to 20 percent from 35 percent — that other, closely held businesses wouldn’t get.

                    ‘Change the Most’

                    His concern centers on the Senate’s plan for large partnerships, limited liability companies, sole proprietorships and other so-called “pass-through” businesses. Under current law, these businesses simply pass their earnings to their owners, who pay income taxes at their individual rates — currently, as high as 39.6 percent, depending on how much they earn.

                    Read more: A QuickTake guide to the tax-cut debate

                    The Senate bill would provide pass-through owners with a 17.4 percent deduction for income — but in combination with other provisions, that would result in an effective top tax rate for business income that’s more than 10 percentage points higher than the proposed corporate tax rate.

                    The House bill would use an entirely different approach, setting a top tax rate of 25 percent for pass-through business income, but then limiting how much of a business’s earnings could qualify for that rate.

                    Reconciling those differences — and addressing Johnson’s concern — may be a complicated process. “That’s part of the equation that could change the most over the next few weeks,” Isaac Boltansky, senior vice president and policy analyst at Compass Point Research and Trading LLC, told Bloomberg Tax. “No one is planning around it yet. There is uncertainty across the board.”

                    Meanwhile, the Obamacare issue looms in the background — threatening at least one GOP senator’s vote. Susan Collins of Maine said earlier this week that tax bill “needs work,” and “I think there will be changes.”

                    The 2010 Affordable Care Act — popularly known as Obamacare — contained a provision requiring individuals to buy health insurance or pay a federal penalty. Removing that penalty in 2019, as the Senate tax bill proposes to do, would generate an estimated $318 billion in savings by 2027, according to the Congressional Budget Office. The savings would stem from about 13 million Americans dropping their coverage, eliminating the need for federal subsidies to help them afford it.

                    Because many of the newly uninsured would be younger, healthier people, insurance premiums would rise 10 percent in most years, the nonpartisan fiscal scorekeeper found.

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