Sweeping U.S. tax bill passes House and Senate, now up to White House
$1.5T tax bill is the largest change to tax code in more than 30 years
U.S. lawmakers passedthe most significant changes to tax rules in a generation on Wednesday in a move that free market enthusiasts have been clamouring for for years.
The Republican-controlledU.S. House of Representatives gave its second OK to the bill at around 1 p.m. ET.That came after the Senate voted in favour of the bill late Tuesday.
The next step will be to send the bill to the White House to become a formal law, which may not happen right away.
At an event on the White House lawn on Wednesday, flanked by Republican lawmakers, the president instead celebrated the vote and shared congratulations with Republicans from both houses of the U.S. Congress.
It's the most substantive reform of the U.S. tax system since at least 1986, and a distillation of the ethosthat has dominated the Republican Party since the Reagan administration: namely, thatcutting taxes and regulations and shrinking government will spur businesses to invest, which will in turn boostthe economy by creating jobs and money for all that willtrickledown, in time, to ordinary Americans.
Not a single Democrat voted for the bill in the Senate.
"It would be good in the short term," said Sung Won Sohn, economics professor at California State University, Channel Islands. "Corporate cash flow would improve, helping investments. Businesses would be spending money and then hiring people."
The sprawling, debt-financed legislation cuts the U.S.corporate income tax rate to 21 per cent from 35 per cent, giveother business owners a new 20 per cent deduction on businessincome and reshapehow the government taxes multinationalcorporations along the lines the country's largest businesseshave recommended for years.
But millions of Americans would stop itemizing deductions underthe bill, which would puttax breaks that incentivize home ownership andcharitable donations out of their reach, but also making taxreturns somewhat simpler and shorter.
The total cost of the legislation is estimated to be at least $1.5 trillion US over the next decade, Toronto-Dominion Bank saidin a note to clients Wednesday morning.
"It will also add to a national debt level already set to rise," the bank said."Over the medium term, this poses several risks to government finances and the economy. The TCJA ultimately reflects an intergenerational shift of the tax burden to future taxpayers."
The White House and the Treasury Department say it will add as much as a full percentage point to economic growth, but non-partisan estimates are far lower. The Congressional Budget Office says the impact is likely to be closer to 0.12 percentage points per year, on average.
TD Bank puts the figure at between 0.1 and 0.3 points per year.
The corporate tax cuts would be permanent, but cuts to personal income taxes are set to expire in 2025, something that will "setup a fiscal cliff battleground for a future administration," TD said.
Scotiabank economist Derek Holt, meanwhile, calculated that the tax savings would be heavily skewed toward the top of the income pyramid, so as to make the impact "unnoticeable to most people."
The top 20 per cent of earners willpocket $7,640 on average, and the top oneper centwill save $51,140 in taxes. The top 0.1 per centof earners will save $193,380, Holt said.
Meanwhile, "the bottom quintile of earners will save $60 in taxes on average in 2018, or a family breakfast at Denny's," Holt said. "What the top 0.1 per centwill save in taxes could almost buy the average priced resale home and that's called reform."
Debt-financed legislation
In two provisions added on to secure needed Republicanvotes, it also would repeal the individual mandateportionof the Obamacare health system andallowoil drilling in Alaska's Arctic National Wildlife Refuge.
Democrats have railed against the legislation as a giveawayto the wealthy and the business community that wouldwiden theincome gap between rich and poor, while adding $1.5 trillion US over the next decade to the $20 trillion U.S. national debt, whichTrump promised in 2016 he would eliminate as president.
Democratic Sen.Chris Van Hollen said the bill "will harmmillions of middle-class families It contains huge, permanent giveaways for big banks and corporations, and asks ourchildren, millions of working Americans and senior citizens, and future generations to pay the price."
Backers of the bill say the tax breaks wouldspur corporations to invest and hire more workers. But U.S. companies already hold nearly $2.4 trillion USin cash on their books which they aren't investing, said Joseph Song, senior economist at Bank of America Merrill Lynch.
"It's not like they're dying for extra cash."
Although Republicans all voted for the bill, a few expressed concerns about its impact on the government debt, by cutting so deeply from tax revenues.
Today, the Senate delivered on its promise of allowing Americans to keep more of their hard-earned money, a commitment I worked to hold it to by fighting to make sure the bill became a bigger and better tax cut and included repeal of the Obamacare individual mandate.
—@RandPaulBut the party leadership insists the tax cuts will pay for themselves.
Despite Trump administration promises that the tax overhaulwould focus on the middle class and not cut taxes for the rich,the non-partisan Tax Policy Centre, a think-tank in Washington,estimated middle-income households would see an average tax cutof $900 US next year under the bill, while the wealthiest 1 per centof Americans would see an average cut of $51,000.
Republican congressional leaders and White House officialsdrafted the bill behind closed doors, unveiling it on Sept. 27.
No public hearings were held and numerous narrow amendmentsfavoured by lobbyists were added late in the process, tilting thepackage more toward businesses and the wealthy.
"When future generations look back at the short and messyhistory of the Republican tax bill, its most enduring lesson will be what it has taught us about how not to legislate," saidSenate Democratic leader Chuck Schumer on the Senate floor.
U.S. House Speaker Paul Ryan defended the bill in televisioninterviews on Wednesday morning, saying support would grow forthe tax plan after it passes and Americans feltrelief.
"I think minds are going to change," Ryan told ABC's GoodMorning Americaprogram.
With files from Reuters and The Associated Press
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