House, Senate Reach Tax Deal, Settle On 21% Corporate Rate

House and Senate Republicans have reportedly agreed on compromise legislation that hashes out the differences in their earlier bills, settling on a 21% corporate tax rate, as the GOP faces new urgency to get the bill to President Trump's desk before the end of the year.

[ibd-display-video id=3017205 width=50 float=left autostart=true] The stunning Democratic victory in Tuesday's special Senate election in one of the reddest states in the nation means that Republicans' two-vote margin of error in the Senate will shrink to just one at the start of 2018. That gives potential holdouts such as Maine Sen. Susan Collins more reason to drive a hard bargain and could further complicate efforts to nail down a 20% corporate rate.

Yet financial markets seem unconcerned that any Republicans will exercise their leverage to an extent that risks derailing the legislation. After rallying on Tuesday amid reports that the bill will come to a vote next week, S&P 500 and Dow Jones industrial average futures briefly weakened overnight as the election results came in. The S&P 500 and Dow industrials hit record highs Wednesday, though the S&P 500 index closed fractionally lower on the stock market today following the Federal Reserve's interest rate hike .

GOP tax negotiators floated a 22% corporate rate last week, and after another week of talks, the goal of a 20% rate still seems out of reach. Republican lawmakers are looking for a way to offset the cost of eliminating the corporate alternative minimum tax and to limit the potential impact of repealing the state and local income-tax deduction in order to win over blue-state colleagues.

From Wall Street's perspective, details of the emerging tax package contained what might be viewed as halfway decent news for luxury homebuilders such as Toll Bros . ( TOL ). The deal forged to help win over Republicans in blue states with high taxes and high home prices would preserve the deductibility of mortgage interest up to $750,000, splitting the difference between the House and Senate bills.

IBD'S TAKE:The bull market won't go on forever, so read IBD's The Big Picture column every day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines. As long as the current "confirmed uptrend" - the equivalent of a green light - stays in place, leading stocks breaking above a buy point are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks that may be poised to move higher.

On a Dec. 5 earnings call, Toll Bros. CEO Douglas Yearley downplayed the impact of tax incentives on its buyers' behavior. "With the Senate bill coming out last week, the headlines have only increased; yet this past week had the highest sales for our first week of December since 2005," he said.

Republican tax writers already have shaken loose about every bit of loose change they can find. That became clear the other week, when GOP senators escalated a new tax on the foreign profits that U.S. multinationals like Apple ( AAPL ) and Google-parent Alphabet [ticker symb=GOOGL ] hold overseas, in part to avoid the 35% corporate rate. After initially proposing a 10% tax on cash and 5% tax on illiquid assets, the Senate hiked those to 14.5% and 7.5%, respectively, raising an extra $113 billion. Apple held $252 billion in cash overseas at the end of its fiscal fourth quarter.

Another part of the emerging deal apparently includes somewhat smaller tax cuts for the vast majority of firms whose profits are taxed via individual returns and a lower, 37% tax bracket for the highest earners. That last provision is already getting some pushback from Collins. Meanwhile, Florida Sen. Marco Rubio isn't happy that the GOP wants to bump up the corporate tax rate to offset high-income tax cuts, rather than use the room to give a bigger child tax credit to working-class families that don't owe income tax.


Trump Tax Cuts Will Fuel Economic Growth At Just The Right Time

Tax Bill Will Pressure FANG, Momentum Stocks, Says JPMorgan

5 Reasons Why JPMorgan, Citigroup, Other Financials Are Seizing Market Leadership

Stocks To Buy And Watch: Top IPOs, Big And Small Caps, Growth Stocks

5 Truck Stocks Set Up Buy Points Despite Tesla Semi: Investing Action Plan

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.