Congressional Republicans say they reached agreement on a final tax bill that will provide a new 20-percent deduction for pass-through income from farms and small businesses. 

Many details of the final legislation, which the House and Senate are expected to take up early next week, were still being nailed down, according to a Senate source. But the agreement, also calls for doubling the estate tax exemption and will include key expensing provisions that farm groups sought to preserve and expand, lawmakers said. 

They said the agreement also would allow deduction of state and local taxes, including income and property taxes, up to $10,000, a concession to lawmakers in high-tax states that could also benefit farmers.

Senate Agriculture Chairman Pat Roberts, R-Kan., said he was confident the legislation would reduce farmers’ tax bills. 

“Under the banner of predictability and stability, I think we’ve made some good progress,” Roberts said. 

Agriculture Secretary Sonny Perdue said on his Twitter feed that the tax cuts "would make a tremendous Christmas present for Americans, including those in agriculture. Most family farms are small businesses, and they need relief to provide for their families and to reinvest in their own operations."

The pass-through deduction is designed to keep taxes on small businesses in line with the corporate tax rate, which would be cut from 35 percent to 21 percent under the deal, slightly higher than the 20 percent rate included in the bills passed earlier by the House and Senate. The lower corporate rate would take effect in 2018, not 2019, as was in the Senate-passed bill.

The Senate bill included a 23-percent pass-through deduction but that was lowered during negotiations between House and Senate Republicans this week.

Most farms are organized as sole proprietorships, partnerships and S corporations and taxed at individual rates, which currently range from 10 percent to 39.6 percent. 

The agreement would set a new top rate of 37 percent. Coupled with the deduction, that would create an effective top rate of 29.6 percent, said Sen. Ron Johnson, R-Wis.

“It’s not my definition of perfect, but this will still be a strong, pro-growth tax package,” said Johnson. 

Still unclear is how the 20-percent deduction would be applied to farmer cooperatives. Both the House and Senate bill would repeal the Section 199 deduction that co-ops either pass on to members or retain for internal improvements. 

A provision that Sen. John Thune, R-S.D., inserted into the Senate bill would allow co-ops to use the 20-percent deduction, but that wouldn’t fully replace the Section 199 deduction, which is applied to domestic production activities, a broader base than taxable income. Thune was seeking to increase the base to which the new deduction would apply. 

The House-passed bill would have repealed the estate tax after 2023, but the Senate only doubled the exemption, and that is the provision that will be in the final version, said Sen. John Hoeven, R-N.D.