Congressional Republicans on Friday unveiled the final version of their dramatic US tax overhaul - debt-financed cuts for businesses, the wealthy and some middle-class Americans - and picked up crucial support from two wavering senators ahead of planned votes by lawmakers early next week.
Passage of the biggest US tax rewrite since 1986, would provide Republican lawmakers and President Donald Trump their first major legislative victory since he took office in January. Prospects for approval soared after Republican senators Marco Rubio and Bob Corker pledged support. Three Republican senators, enough to defeat the measure in a Senate that Trump's party controls with a slim 52-48 majority, remained uncommitted: Susan Collins, Jeff Flake and Mike Lee.
The final version hammered out between Senate and House of Representatives Republicans after each chamber previously passed competing versions contained no surprises. It would cut the corporate income tax rate to 21 per cent from 35 per cent, according to a summary distributed to reporters by congressional tax writers. Corporate tax lobbyists have been seeking a tax cut of this magnitude for many years.
The bill, the summary showed, would create a 20-per cent business income tax deduction for owners of “pass-through" businesses, such as partnerships and sole proprietorships; allow for immediate write-off by corporations of new equipment costs; and eliminate the corporate alternative minimum tax.
Under a new territorial system, the bill would exempt US corporations from taxes on most of their future foreign profits. It also sets a one-time tax for companies to repatriate more than $2.6 trillion now held overseas, at rates of 15.5 per cent for cash and cash-equivalents and 8 per cent for illiquid assets.
If passed by Congress, the changes would be in effect for 2018 taxes, with tax returns for 2017 unaffected. Democrats have been unified against the measure, calling it a giveaway to corporations and the rich that would drive up the federal deficit.
Bernie Sanders, a leading liberal voice in the Senate who unsuccessfully sought the Democratic presidential nomination last year, called the bill “a moral and economic obscenity.” “It is a gift to wealthy Republican campaign contributors and an insult to the working families of our country,” Sanders said.
Republicans have said the tax cuts are needed because the economy is not expanding quickly enough. “Now the American people are closer to a plan that will deliver higher wages, lower taxes, a simpler system, and a stronger American economy," House Republican leader Kevin McCarthy said.
The House was expected to vote on the bill on Tuesday. Republicans have a large majority there, and passage was expected despite Democratic opposition. The bill would then go to the Senate. Republicans can afford to lose only two votes from within their own ranks and still win Senate passage.
The tax bill was expected to add at least $1 trillion to the 20 trillion US national debt over 10 years, making it an unusual example of deficit spending on stimulative tax cuts at a time when the economy is already expanding.
For months, Trump has touted the bill as a middle-class tax cut. Studies from independent analysts and non-partisan congressional researchers have projected that corporations and the rich would benefit disproportionately.
TOP RATE CUT
The Republican bill would maintain the existing seven individual and family income tax brackets with rates of 10, 12, 22, 24, 32, 35 and 37 per cent. That top rate, for the highest-earning Americans, would be cut from today's 39.6 per cent.
Republicans abandoned their quest to eliminate the estate tax on inherited assets, a move that would have benefited the richest Americans. But they did propose increasing the exemption for the tax to $10 million from $5 million person.
The bill does not eliminate Wall Street's so-called carried interest loophole that allows fund managers to claim a lower capital gains tax rate on profits from investments held more than a year. Getting rid of the loophole was a Trump campaign pledge. Instead, the legislation makes it harder for some fund managers to take advantage of the loopholes by requiring them to hold investments for more than three years before claiming it.
Trump, who last year promised voters major tax cuts, wants a bill on his desk before the December 25 Christmas holiday so he can sign it into law and finish 2017 with at least one big win in Congress before the 2018 mid-term election campaigns, when Republicans will defend their Senate and House of Representatives majorities.
Since sweeping to power in Washington in January, Trump and his fellow Republicans have failed to pass major legislation including a promised healthcare overhaul, while Trump's public approval ratings have remained low. Since last month, Republicans have lost hard-fought elections in Alabama and Virginia.
Stock markets have been rallying for months in anticipation of sharply lower tax rates for corporations, wealthy financiers and business owners, all of which the bill would deliver. Wall Street's three major stock indexes closed at record highs on Friday, driven by corporate tax rates that looked likely to pass. The Dow Jones Industrial Average rose 0.58 per cent to 24,651.74, the S&P 500 gained 0.90 per cent to 2,675.81 and the Nasdaq Composite rose 1.17 per cent, to 6,936.58.
LATE CHANGES
As the tax package evolved, it tilted increasingly toward benefiting businesses and the wealthy. Provisions for offsetting the revenue costs of last-minute changes were troublesome for some lawmakers.
Rubio said he would support the bill after its approach to the child tax credit was changed. The bill doubles the credit, meant to help reduce the costs of raising kids, to $2,000 per dependent child under the age of 17, with a refundable portion of $1,400. That refundable portion was raised from $1,100 at the last minute to win Rubio's backing. Lee called the change to the child credit “a big win” but stopped short of endorsing the bill until he saw the details.
Corker, a fiscal hawk who opposed an earlier bill that passed the Senate because of its deficit impact, said the final measure was “far from perfect” but he would support it, calling it a “once-in-a-generation opportunity” to help US businesses. Collins has remained non-committal, in part out of concern about a provision that would repeal the fine imposed under the Affordable Care Act, or Obamacare, on Americans who do not obtain health insurance. Flake has said he needs to see all the details before supporting the measure.
The Senate vote outlook has been complicated by Republican Senator John McCain's hospitalisation for treatment for side effects of cancer therapy. His office said he “looks forward to returning to work as soon as possible.” Vice-President Mike Pence has delayed a trip to West Asia in case his vote is needed to break a Senate tie.