Corker to Vote Yes, All but Ensuring Passage: Tax Debate Update

The estate tax currently applies a 40 percent tax rate to estates worth more than $5.49 million for single individuals, or $10.98 million for couples.

Noem of South Dakota said she’s disappointed it isn’t being repealed, but happy to see policy is being improved. — Kaustuv Basu

GOP Drops Some Controversial House Measures (10:20 a.m.)

House and Senate tax negotiators have decided to drop some of the most controversial provisions – measures related to religion, health care and education — that were included in the House bill approved last month.

A repeal of the Johnson amendment — which prohibits tax-exempt nonprofits like churches from supporting or opposing political candidates — isn’t part of the final tax bill. The House legislation had called for stripping the amendment, a move welcomed by evangelicals, while the Senate bill approved Dec. 2 was silent on the issue.

The conference committee’s move was welcomed by the top Democrat on the Senate Finance Committee, Ron Wyden of Oregon.

“I’m pleased to announce that Democrats successfully prevented the repeal of the Johnson Amendment from being jammed into any final Republican tax deal,” Wyden said in a statement. “I will continue to fight all attempts to eliminate this critical provision that keeps the sanctity of our religious institutions intact, prevents the flow of dark money in politics, and keeps taxpayer dollars from advancing special interest biddings.”

Another House provision — the repeal of medical expense deductions — has also been dropped from the compromise bill, which is scheduled to be released later Friday.

Instead, the final bill will follow the Senate legislation and include a two-year tax extended tax break for individuals with high medical expenses, according to two people familiar with the provision who described it on the condition of anonymity.

The provision lowers the amount people have to spend on health costs before they can deduct those costs, to 7.5 percent of their income, from 10 percent under current law. Its expansion was pushed for by Senator Susan Collins, the Maine Republican whose vote is crucial to passing the tax package.

The conference report will also call for removing a provision from the House-passed bill to tax higher education tuition waivers, according to two senior congressional aides. The move had sparked outcry from graduate students and their advocates for fear that it would hammer many of them financially. — Sahil Kapur and Kaustuv Basu

Mystery, Suspense Mount as Final Plan Is Due (4:00 a.m.)

Congressional tax negotiators are hours away from signing a compromise, but two important questions remain: Where’s the money? And do they have the votes?

Changes that have been revealed so far — many of them sweeteners designed to secure those needed votes — would probably push the overall tax cut in the plan over a $1.5 trillion limit that Congress set earlier this year. But so far, any measures that would help offset the cuts and bring the bill back in line have been closely guarded.

Potential ways to boost revenue — such as reducing the duration of the planned individual tax cuts so that they’d expire by 2024 — have been mostly swatted down.

“Never heard that — don’t know where that’s coming from,” Senator John Thune, the chamber’s No. 3 Republican, said in response to questions about imposing earlier “sunsets” on the individual rate cuts. They’d expire in 2026 under the Senate bill that was approved Dec. 2.

Thune said Thursday that various provisions would offset higher costs of the most recent tweaks to the final bill, but he didn’t specify them.

Sweeteners that have emerged this week — including cutting the top individual tax rate for the highest earners to 37 percent, from 39.6 percent currently, and broadening the kinds of state and local taxes that would qualify for an individual deduction that’s capped at $10,000 — are expected to lose an estimated $200 billion or more over 10 years.

GOP leaders may be keeping the so-called spinach under wraps partly because they have only a slim majority in the Senate and want to prevent members of their own party from making additional last-minute demands. Senator Marco Rubio of Florida on Thursday threatened to vote against the bill unless negotiators boost the child tax credit.

Rubio’s opposition — along with that of GOP Senator Bob Corker of Tennessee, who voted against the Senate’s version of the legislation — would put the bill within one vote of collapse.

Lawmakers appeared to be tweaking the final agreement Thursday to make the numbers work. When Senate Finance Chairman Orrin Hatch was asked about what the so-called pay-fors would be, he responded: “I’m not quite sure what they all are.”

Hatch added that he didn’t know if lawmakers would be able to meet Rubio’s demand. Asked if the Senate could pass the bill without Rubio’s vote, he said, “Probably.”

In their compromise legislation, lawmakers have considered setting the corporate rate — which is currently 35 percent — at 21 percent instead of 20. That change would allow them to begin the rate cut in 2018 instead of a year later. They are also said to have discussed setting higher-than-planned tax rates — as high as 15 percent — on U.S. companies’ stockpiled offshore profit.

But that may not be enough to cover the gap.

Thune and Republican Senator Rob Portman of Ohio said they’re not discussing moving the date to end individual rate cuts any earlier. Doing so would be politically difficult — if a future Congress extends the individual cuts, as GOP leaders have promised they would, deficits would almost certainly increase even more. But if they’re not extended, individuals would receive only short-term tax relief while corporations see a permanent rate cut of 14 percentage points.

In addition to Rubio and Corker, the votes of a handful of other GOP senators remain in question.

Mike Lee of Utah is “undecided,” and — like Rubio — he’s working to make the child tax credit more generous, according to Conn Carroll, his spokesman.

Jeff Flake of Arizona, who has voiced concerns about tax cuts adding to the deficit, said Thursday he’s undecided as well.

Susan Collins of Maine has voiced opposition to cutting the tax rate for incomes above $1 million and has pushed for passage of two health-care stabilization bills that the House has been cold to. She hasn’t committed to supporting the final tax measure. “I am going to review the tax bill over the weekend,” she said. “There’s lots of rumors about what’s in it, what isn’t.”

There’s also uncertainty around the votes of GOP senators John McCain of Arizona and Thad Cochran of Mississippi. Both have been absent from the Senate this week with health issues, but officials have said both will be able to return for votes next week.

House Speaker Paul Ryan said Thursday he’s not sure which chamber will vote first on the final bill. One consideration, he said, was “managing absences in the Senate,” although he didn’t elaborate. — Sahil Kapur

— With assistance by Sahil Kapur, Steven T. Dennis, Kaustuv Basu, Erik Wasson, and Allyson Versprille.

Follow the tax-debate developments as they take place via Bloomberg’s ongoing news coverage.