Senate Majority Leader Mitch McConnell (R-Ky.) says he’s open to making a provision on state and local tax deductions more generous to win over House Republicans when the two chambers merge their tax bills in the coming weeks.
Some House Republicans, particularly from high-tax states such as California, want language that would allow taxpayers to deduct up to $10,000 of not just their property taxes, but income taxes as well. Both the Senate and House bills include the property tax provision, which was aimed at winning support from GOP lawmakers from states such as New Jersey and New York.
“That sounds like a kind of reasonable idea,” McConnell told radio host Hugh Hewitt Wednesday of allowing the deduction to apply to income tax as well. “There are a lot of these things that are floating back and forth, and it’s just impossible for me on your program or frankly to anybody else at this point to predict exactly how the final product turns out.”
The property tax provision was drafted as a compromise in the House and was added at the last minute to the Senate legislation at the behest of Sen. Susan Collins (R-Maine).
House Republicans from California are concerned the issue could become a net tax increase on some of their constituents. Several voted for the House tax reform bill on the promise that more would be done to fix it.
Now that the chambers are preparing to go to conference, California Republicans want more federal tax relief for residents of the state, which has the highest state income tax rate in the country. Californians would not benefit as much from the bills’ current language to deduct property taxes because the state already caps its property taxes.
One way to pay for more generous deductions would be to raise the corporate tax rate above President Donald Trump’s “red line” of 20 percent.
Trump himself opened the door to raising the corporate tax rate to 22 percent over the weekend, although many senior Republicans are deeply opposed to the idea. The corporate tax rate is currently 35 percent. Each percentage point the corporate rate increases is worth about $100 billion over a decade, which could be used to pay for priorities other Republicans are pushing.
“I think the corporate rate should be at 20. Both bills reflect 20 percent,” McConnell told reporters on Tuesday. “We think that’s important to make sure we’re competitive in the global economy.”
The Senate will vote to go to conference with the House on its tax legislation later Wednesday, McConnell said on the floor Wednesday morning. The House took that vote on Monday, although conservatives nearly tanked it in an unrelated dispute over government spending negotiations.
Colin Wilhelm contributed to this report.