Confident congressional Republicans forged an agreement Wednesday on a major overhaul of the nation's tax laws that would provide generous tax cuts for corporations and many Americans—and deliver a major legislative accomplishment to President Donald Trump and the GOP.
Trump and GOP leaders have billed the package as a huge benefit for the middle class. The measure would scrap a major tax requirement of Barack Obama's Affordable Care Act, a step toward the ultimate GOP goal of unraveling the law.
"The cynical voices that opposed tax cuts grow smaller and weaker, and the American people grow stronger," Trump said at the White House. "This is for people of middle income, this is for companies that are going to create jobs. This is for very, very special people, the great people of America."
The business tax cuts would be permanent, but reductions for individuals could expire after a decade—saving money to comply with Senate budget rules. In all, the bill would cut taxes by about $1.5 trillion over the next 10 years, possibly adding billions to the nation's mounting debt.
The legislation, which is still being finalized, would cut the top tax rate from 39.6 percent to 37 percent, slash the corporate income tax rate from 35 percent to 21 percent and allow homeowners to deduct interest only on the first $750,000 of a new mortgage.
The top tax rate currently applies to income above $470,000 for married couples, though lawmakers are reworking the tax brackets.
The standard deduction would be nearly doubled, to $24,000 for married couples.
Details of the agreement were described by Republican senators and congressional aides.
"It's not my vision of the perfect, but again, this is definitely going to be a strong pro-growth tax package," said Sen. Ron Johnson, R-Wis.
Republicans see passage of the legislation as a political imperative, proving to voters they can govern as the GOP fights to hold onto its slim majorities in the House and Senate. Republicans said they expect the package to increase economic growth, generating additional tax revenue and lessening the hit to the budget deficit. Some economists aren't as optimistic.
Federal Reserve Chair Janet Yellen said she and her colleagues expect a "modest lift" to economic growth from the tax package.
Yellen said at a news conference the likelihood of lower taxes is why Fed officials expect the economy to grow at 2.5 percent in 2018. But growth would then slip back closer to its recent 2 percent average.
She said that any wage growth would likely stem from the low unemployment rate rather than the tax cuts.
Negotiators have removed several controversial provisions from the tax bill, including one that would have eliminated the deduction for interest on student loans and another deduction for medical expenses, said two congressional aides.
Also, the bill would no longer start taxing graduate-school tuition waivers, said the aides, who spoke on condition of anonymity because they were not authorized to publicly discuss private negotiations.
The tax bill would scale back the deduction for state and local taxes, allowing families to deduct only up to a total of $10,000 in property and income taxes. The deduction is especially important to residents of high-tax states like New York, New Jersey and California.
Business owners who report business income on their personal tax returns would be able to deduct 20 percent of that income.
The bill would repeal the mandate that most Americans get health insurance, a provision of the 2010 health care law. Republicans suffered a humiliating defeat this past summer when they were unable to dismantle the health care law after seven years of promises. Scrapping the individual mandate would provide them with more than $300 billion for deeper tax cuts while undermining the law.
Senate leaders plan to vote on the package Tuesday. If it passes, the House would vote next. GOP leaders hope to send the bill to Trump before Christmas.
"Let's not waver now—let's not give in to the Washington status quo—not when tax reform is so close," said Rep. Kevin Brady, R-Texas, chairman of the tax-writing House Ways and Means Committee.
The measure has come under assault by Democrats who say it is unfairly tilted in favor of business and the wealthy.
Top Senate Democrat Chuck Schumer said the public doesn't know all the details of the bill, "but they smell what's going on and that is tax cuts for the wealthiest and no help for so many in the middle class."
Schumer predicted that the politically unpopular bill would drag down Republicans in next year's congressional elections. "I believe they'll pay a very steep price for this bill in 2018," he said.
The agreement was reached hours before a joint House-Senate conference committee met in public for the first time. The committee is charged with blending the tax bills passed by the House and Senate, though Republicans have done all of their negotiations behind closed doors.
Democrats have not been included in any substantive talks on the bill.
The full details will be unveiled by the end of the week, Brady said.
Once the plan is signed into law, workers could start seeing changes in the amount of taxes withheld from their paychecks early next year, lawmakers said—though taxpayers won't file their 2018 returns until the following year.
The IRS said in a statement Wednesday that taxpayers could begin seeing less money withheld from their paychecks "as early as February." The agency said it was taking initial steps to prepare withholding guidance for employers, which it expects to issue in January.
Corporate tax cuts would take effect in January, allowing businesses to immediately write off the full cost of capital investments.