By David Morgan and Amanda Becker

WASHINGTON (Reuters) – Congressional Republicans have reached a deal on final tax legislation, the U.S. Senate’s top Republican tax writer said on Wednesday, with President Donald Trump saying he would back a sharply lowered corporate tax rate of 21 percent.

The 21 percent rate would be slightly above a proposed 20-percent rate that Trump supported earlier, but still far below the present headline rate of 35 percent, a deep tax cut that U.S. corporations have been seeking for years.

As they finalized the biggest tax overhaul in 30 years, Republicans for weeks wavered on slashing the top income tax rate for the rich, but finally agreed to do it, despite Democrats’ criticism that the bill favors the wealthy and corporations, while offering little to the middle class.

The emerging congressional agreement includes a 21-percent corporate rate; a top individual income tax rate of 37 percent, down from the current 39.6 percent level; and a $10,000 cap on deducting state and local property or income tax payments, said sources familiar with the negotiations.

Although the president said a “final number” on the corporate rate had not been set, the Senate and House of Representatives were hurtling toward an agreement that would clear the way for final votes in both chambers next week.

“I think we’ve got a pretty good deal,” Senate Finance Committee Chairman Orrin Hatch told reporters as he prepared to join other Republicans for lunch with Trump.

Hatch’s remarks appeared to reinforce expectations that a final vote could begin in the Senate as early as Monday. Further details of the agreed legislation were not yet available.

Republicans have been urgently trying to finalize details of their bill without increasing its estimated impact on the federal deficit. As drafted, it is expected to add as much as $1.5 trillion to the $20-trillion national debt over 10 years.

At a tax event held by Democrats, Moody’s Analytics Chief Economist Mark Zandi said the Republican bill, if enacted, would cause interest rates to rise, meaning the benefits of a lower corporate tax rate would be “completely washed out.”

Stock markets have rallied for months in anticipation of lower taxes for businesses. The benchmark Dow Jones Industrial Average Index <.DJI> was up 0.5 percent at 24,628 in afternoon trading.

“The market is trading at all-time highs, its run-up has been really in anticipation of tax reform,” said Ken Polcari, NYSE floor division director at O’Neil Securities in New York.

CORKER UNDECIDED

Republican Senator Bob Corker, a fiscal hawk, on Wednesday said he was undecided on whether to support the bill. He told reporters: “My deficit concerns have not been alleviated.”

Asked at the lunch by reporters if he would sign a bill with a 21-percent corporate tax rate, Trump said: “I would … It’s very important for the country to get a vote next week.”

With their defeat on Tuesday in an Alabama special Senate election, Republicans were under increased pressure to complete their tax overhaul before Christmas and before a new Democratic Alabama senator can be formally seated in the Senate.

Democrat Doug Jones’ capture of the Alabama Senate seat came hours ahead of the final tax agreement being hammered out.

When Jones, who upset Republican Roy Moore in the deeply conservative Southern state, arrives in Washington, the Republicans’ already slim Senate majority will narrow to 51-49, further complicating Trump’s legislative agenda.

Fast action by Republicans on taxes would prevent Jones from upsetting the expected vote tallies on this bill since he will not likely be seated until late December or early January.

Senate Democratic Leader Chuck Schumer called on Republicans to delay a vote on overhauling the tax code for the first time in 30 years until Jones can be seated, but that was unlikely.

A one-percentage-point change in the corporate rate would give tax writers about $100 billion of revenues over a decade that could be used in many ways. One could be to repeal a federal tax on inheritances paid by wealthy Americans. Another might be to end the corporate alternative minimum tax.

Some Republicans also wanted a slightly higher corporate rate to pay for a higher child tax credit. Lawmakers had also debated capping a popular individual deduction for mortgage interest at $750,000 in home loan value, instead of $1 million.

If Trump can sign a tax bill by the end of the year, it would be the first major legislative victory for him and the Republicans since they took control of the White House and both chambers of Congress in January.

After his lunch with Republican lawmakers, Trump will speak on tax legislation alongside five middle class families who would benefit, senior administration officials said.

He wants to try to counter claims that the Republican tax plan would largely benefit corporations and the wealthy.

The nonpartisan Joint Committee on Taxation and Congressional Budget Office have both said wealthier taxpayers would gain disproportionately from the Republican proposals.

(Additional reporting by Jeff Mason, Steve Holland, Susan Cornwell, Richard Cowan, Makini Brice and Doina Chiacu; Editing by Kevin Drawbaugh and James Dalgleish)

By David Morgan and Amanda Becker

WASHINGTON (Reuters) – The U.S. Senate narrowly approved a tax overhaul, moving Republicans and President Donald Trump a big step closer to their goal of slashing taxes for businesses and the rich while offering everyday Americans a mixed bag of changes.

In what would be the largest change to U.S. tax laws since the 1980s, Republicans want to add $1.4 trillion over 10 years to the $20 trillion national debt to finance changes that they say would further boost an already growing economy.

“We are one step closer to delivering MASSIVE tax cuts for working families across America,” Trump said in an early-morning tweet.

U.S. stock markets have rallied for months in the hope that Washington would provide significant tax cuts for corporations.

Celebrating their Senate victory, Republican leaders predicted the tax cuts would encourage U.S. companies to invest more and boost economic growth.

“We have an opportunity now to make America more competitive, to keep jobs from being shipped offshore and to provide substantial relief to the middle class,” said Mitch McConnell, the Republican leader in the Senate.

The Senate approved their bill in a 51-49 vote with Democrats complaining that last-minute amendments to win over skeptical Republicans were poorly drafted and vulnerable to being gamed later by lawyers and accountants in the tax avoidance industry.

“The Republicans have managed to take a bad bill and make it worse,” said Senate Democratic leader Chuck Schumer. “Under the cover of darkness and with the aid of haste, a flurry of last-minute changes will stuff even more money into the pockets of the wealthy and the biggest corporations.”

No Democrats voted for the bill, but they were unable to block it because Republicans hold a 52-48 Senate majority.

Talks will begin, likely next week, between the Senate and the House of Representatives, which has already approved its own tax bill.

Trump wants that to happen before the end of the year, allowing him and his Republicans to score their first major legislative achievement of 2017, despite controlling the White House, the Senate and the House since he took office in January.

Republicans failed in their efforts to repeal the Obamacare healthcare law over the summer and Trump’s presidency has been hit by White House in-fighting and by a federal investigation into possible collusion last year between his election campaign team and Russian officials.

The tax overhaul is seen by Trump and Republicans as crucial to their prospects at mid-term elections in November 2018, when they will have to defend their majorities in Congress.

In a legislative battle that moved so fast a final draft of the bill was unavailable to the public until just hours before the vote, Democrats slammed the proposed tax cuts as a give-away to businesses and the rich financed with billions of dollars in taxpayer debt.

The framework for both the Senate and House bills was developed in secret over a few months by a half-dozen Republican congressional leaders and Trump advisers, with little input from the party’s rank-and-file and none from Democrats.

Six Republican senators, who wanted and got last-minute amendments and whose votes had been in doubt, said on Friday they would back the bill and did so.

Senator Bob Corker, one of few remaining Republican fiscal hawks who pledged early on to oppose any bill that expanded the federal deficit, stood out as the lone Republican dissenter.

“I am not able to cast aside my fiscal concerns and vote for legislation that … could deepen the debt burden on future generations,” said Corker, who is not running for re-election.

KEY CHANGES

Numerous last-minute changes were made to the bill on Friday and in the early morning hours of Saturday.

One was to make state and local property tax deductible up to $10,000, mirroring the House bill. The Senate previously had proposed entirely ending state and local tax deductibility.

In another change, the alternative minimum tax (AMT), both for individuals and corporations, would not be repealed in full. Instead, the individual AMT would be adjusted and the corporate AMT would be maintained as is, lobbyists said.

Another change would put a five-year limit on letting businesses immediately write off the full value of new capital investments. That would phase out over four years starting in year six, rather than be permanent as initially proposed.

Under the bill, the corporate tax rate would be permanently slashed to 20 percent from 35 percent, while future foreign profits of U.S.-based firms would be largely exempted from tax — both changes pursued by corporate lobbyists for years.

On the individual side of the tax code, the top tax rate paid by the highest-income earners would be cut slightly.

The Tax Policy Center, a nonpartisan think tank, analyzed an earlier but broadly similar version of the bill passed by the Senate tax committee on Nov. 16 and found it would reduce taxes for all income groups in 2019 and 2025, with the largest average tax cuts going to the highest-income Americans.

Two Republican senators announced their support for the bill on Friday after winning more tax relief for non-corporate pass-through businesses. These include partnerships and other companies not organized as public corporations, ranging from mom-and-pop concerns to large financial and real estate groups.

The bill now features a 23 percent tax deduction for such business owners, up from the original 17.4 percent.

Democratic Senator Richard Blumenthal said Trump controls more than 500 pass-through companies that will directly benefit. “So the president may be celebrating, but most Americans will rue this day,” Blumenthal said.

The Senate bill would gut a section of Obamacare by repealing a fee paid by some Americans who do not buy health insurance, a step critics said would undermine the Obamacare system and raise insurance premiums for the sick and the old.

Senator Susan Collins, a moderate Republican, said she obtained commitments from Republican leaders that steps would be taken later in separate legislation to minimize the impact of the repeal of the “individual mandate” fee.

(Additional reporting by Susan Cornwell, Susan Heavey and Richard Cowan in Washington; Caroline Valetkevitch in New York; Editing by Kevin Drawbaugh, Kieran Murray and Alexander Smith)