US Senate narrowly backs corporation tax cut reform

Reuters
The Senate has 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.
Reuters

The United States Senate has 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 US tax laws since the 1980s, Republicans want to add US$1.4 trillion over 10 years to the US$20 trillion national debt to finance changes that they say would further boost the economy.

Trump, speaking to reporters after the pre-dawn vote on Saturday, praised the Senate for passing “tremendous tax reform” and said people will be “very, very happy.”

Once the Senate and House of Representatives reconcile their respective versions of the legislation, Trump said, the resulting bill could cut the corporate tax rate from 35 percent “to 20 (percent). It could be 22 (percent) when it comes out. It could also be 20 (percent).” 

US stock markets have rallied for months on hopes that Washington would provide significant tax cuts for corporations.

Celebrating their Senate victory, Republican leaders predicted the tax cuts would encourage 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.

“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 this week, between the Senate and the House, which already has approved its own version of the legislation, to reconcile their respective bills.

Trump, who predicted that the negotiations would produce “something beautiful,” wants that to happen before the end of the year. This would to score their first major legislative achievement of 2017 after having controlled the White House, Senate and the House since he took office in January.

Hit by infighting

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

The tax overhaul is seen by Republicans as crucial to their prospects at mid-term Congress elections next November.

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 giveaway to businesses and the rich financed with billions of dollars in taxpayer debt.

The framework for both the Senate and House bills was developed 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 was 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.

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

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

“The tax reform measure that passed the Senate is negative overall for state and local government finances. Lower federal tax rates for businesses and individuals could result in a modest boost to hiring and consumption, positively affecting state and local revenues,” Nick Samuels, Vice President at Moody’s Investors Service, said.

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 cut to 20 percent from 35 percent, while future foreign profits of US-based firms would be largely exempt.

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

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.


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