House and Senate lawmakers plan to begin working this week on compromise tax-overhaul legislation—a key step in their drive to send a package of tax cuts for corporations and individuals to President Donald Trump by the end of the year. Here are the latest developments, updated throughout the day:

McConnell Says He’s Open to State Break Tweak (12:15 p.m.)

Senate Majority Leader Mitch McConnell said Wednesday he’s open to tweaking final tax legislation to appease lawmakers who want to let constituents deduct state income taxes. Current House and Senate bills would preserve an individual deduction for state and local property taxes—capped at $10,000—but not income taxes.

“There’s some in the House who would like to see that applied not just to property, but to income tax, you know, where you can sort of pick which state and local tax you want to deduct,” the Kentucky Republican said on conservative radio host Hugh Hewitt’s show. “That sounds like a kind of reasonable idea.”

Senate Majority Leader Mitch McConnell, a Republican from Kentucky, center, walks through the Dirksen Senate Office building after speaking at a news conference on tax reform in Washington, D.C.
Senate Majority Leader Mitch McConnell, a Republican from Kentucky, center, walks through the Dirksen Senate Office building after speaking at a news conference on tax reform in Washington, D.C. Andrew Harrer/Bloomberg

“There are a lot of these things that are floating back and forth,” McConnell said, adding that he cannot predict “exactly how the final product turns out” once the House and Senate complete their conference negotiations.

House Republican leaders have signaled openness to relieving the burden for residents of high-tax states. Ways and Mains Chairman Kevin Brady, who’s overseeing the House-Senate conference committee for tax negotiations, said Tuesday that lawmakers are examining ways to make the legislation more favorable to high-tax states, but said he won’t know how they address it until the talks are really under way.

House Majority Leader Kevin McCarthy of California said the same day that he likes the idea of allowing taxpayers to deduct property and income taxes up to a certain limit. Property taxes can be relatively low in California while income taxes are among the highest in the nation.

It’s unclear how lawmakers would pay for any modifications to the state and local tax break. Preserving the property tax deduction up to $10,000 would cost about $148 billion over a decade, according to the Joint Committee on Taxation. McConnell has been said to want any proposed changes presented with ways to pay for them.

The so-called SALT deduction has been more of a source of tension in the House than in the Senate, because there aren’t any Republican senators from states with the highest taxes. Twelve out of the 13 GOP House lawmakers who voted against the bill last month were from high-tax states. Still, including the property tax deduction in the Senate bill was a last minute change to help get the support of Republican Senator Susan Collins of Maine.

Two lawmakers from New Jersey—Leonard Lance, a Republican, and Josh Gottheimer, a Democrat—plan on submitting a joint proposal to the conference committee that would maintain SALT in its entirety.

The lawmakers said repealing the break will lead to “double taxation” and “pay for reform on the backs of just a few states that already pay significantly more than other states in federal taxes.” One of those net donor states, they note, is New Jersey.

They’ve proposed changing estate tax rules about stepped-up basis and closing what they call a loophole for charitable donations to private foundations as ways to offset some of the lost revenue that would result from keeping SALT.

—Sahil Kapur, Laura Davison and Kaustuv Basu

What to Watch on Wednesday:

The Senate will begin debate on the motion to proceed to conference—up to 10 hours are permitted. Lawmakers selected to participate on the conference committee are likely to be named following the debate. President Donald Trump has a cabinet meeting, which will likely include discussion of tax overhaul efforts. House conservatives, who are pushing for a funding extension until Dec. 30, are meeting to discuss federal spending with Speaker Paul Ryan. Their objectives could threaten some of the deals Senate Republican leaders cut to secure votes for the tax plan, including heading off cuts to Medicaid and legislation to stabilize Obamacare insurance markets.

Here’s what Happened on Tuesday:

House Ways and Means Chairman Kevin Brady, who’s overseeing the House-Senate conference committee for tax negotiations, said repealing the corporate alternative minimum tax is “one of the priorities” for the conference. The repeal of the individual mandate requirement that’s part of the 2010 Affordable Care Act -- a feature of the Senate bill, but not the House legislation—is still under discussion, but is likely to have strong support among House Republicans, Brady said. Two influential GOP senators—Senator Rob Portman of Ohio, one of the chamber’s main tax writers, along with Senator Orrin Hatch, chairman of the tax-writing Senate Finance Committee—said their preference is to repeal the corporate AMT. Trump endorsed the work of the conference committee, calling the panel a “mixer,” where lawmakers will pick the good things and get rid of the things they don’t like. Fifty-three percent of U.S. voters disapprove of the Republican overhaul plan, and 64 percent say it favors the wealthy, according to a Quinnipiac University poll released Tuesday. The poll was conducted from Nov. 29 to Dec. 4.

Bloomberg News