Donald Trump scored a victory last weekend when the U.S. Senate narrowly approved a tax overhaul on Saturday.
The tax overhaul, which is the largest change in the US tax laws since 1980s, is seen as a step towards the ultimate goal of slashing taxes for businesses and the rich while offering everyday Americans a mixed bag of changes. Trump spoke to reporters as he left the White House for New York hours after the pre-dawn vote praising the Senate for passing “tremendous tax reform” that could cut corporate tax rate from 35 per cent to 20 per cent.
Celebrating their Senate victory, Republican leaders predicted the tax cuts would encourage U.S. companies to invest more and boost economic growth. 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. 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, 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 allow him and his Republicans to score their first major legislative achievement of 2017 after having controlled the White House, the Senate and the House since he took office in January.
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.
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, was the lone Republican dissenter.
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 exempt, both changes pursued by corporate lobbyists for years.
On the individual side, 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. The bill now features a 23 percent tax deduction for such business owners, up from the original 17.4 percent.