A corporate tax reform plan is likely to take shape sometime this fall and be signed into law next year, regardless of what happens with congressional efforts to replace Obamacare.
Tax reform and tax breaks have been a key part of the Trump agenda, but expectations for legislation have faded amid congressional wrangling over health care and the constant headlines around investigations into the Trump campaign's ties to Russia.
What appears to be emerging from behind-the-scenes work on tax reform by Congress and the Trump administration is a smaller tax cut for corporations than originally desired but reforms that should level some of the playing field for U.S. companies. For individuals, there may be smaller tax breaks as well, with a focus on cuts for lower- and middle-class taxpayers.
Political strategists say the negotiations should ultimately lead to tax legislation for corporations and individuals next year, even if efforts to reform the Affordable Care Act fail.
"We think taxes are different than health care. We think there are lessons learned from health care. It's not easy," said Daniel Clifton, head of policy research at Strategas. "The Russia story has made it harder to do, but we're confident the fourth quarter is going to be very focused on tax reform, with completion in the first quarter."
He added: "There's a lot of progress being made on tax reform, and it's all being done behind the scenes. They're trying to work out the thornier issues of tax reform so they avoid the problems they're having on health care."
Replacing the Affordable Care Act, also called Obamacare, was set as a priority by Republicans ahead of tax reform because it was expected to save money that could be applied to tax breaks. Senate Majority Leader Mitch McConnell this week delayed the Senate's recess by two weeks so that efforts on health care could continue. GOP senators rolled out their revised health-care bill on Thursday.
Clifton said there's less than a 50 percent chance that the current health-care bill passes the Senate, and strategists say health care ultimately may have to be addressed in a dual effort with Democrats.
"The health-care bill is not in a good place right now," Clifton said. "What it does is it provides more money to stabilize the exchanges, and that's for the moderates. For the conservatives, it allows health insurers to offer plans that are not now ACA compliant ... a more slimmed down, cheaper plan. Those are the two big changes. They took out the tax cut so they could not be accused of cutting taxes for the wealthy, while cutting Medicaid for the poor. They put money in for opioids, about $40 billion, and they made no changes to [cuts to] Medicaid."
Tax reform will likely fall short of the big breaks initially proposed by the House or the 15 percent corporate tax rate pushed by President Donald Trump. Based on early proposals, the new corporate tax rate could be about 23 percent.