US President Donald Trump cheered a massive overhaul of US tax laws Wednesday, saying "we broke every record."
Flanked by Republican lawmakers, the president took a lengthy bow outside the White House shortly after the House finished its last-minute re-vote to pass the US$1.5-trillion bill that provides generous tax cuts for corporations and the wealthiest US citizens while providing smaller cuts for middle- and low-income families.
Democrats call the legislation a boon to the rich that leaves middle-class and working people behind.
Trump said the effort had "been an amazing experience" and claimed it resulted in "the largest tax cut in the history of our country."
Actually, Trump's cuts are nowhere near the largest in US history.
The vote was 224-201 and came hours after the Senate's early morning passage along party-lines.
Republicans cheered when the vote tally hit the magic number for passage, and again when the final vote was announced. One Democrat yelled, "Do over!"
It is the first major overhaul of the nation's tax laws since 1986.
On Twitter and in White House remarks, Trump hailed the outcome, his own efforts and the work of GOP allies, including Majority Leader Mitch McConnell of Kentucky, who had drawn the president's wrath for the Senate's inability this past summer to dismantle the healthcare law.
"Our team will go onto many more VICTORIES!" Trump tweeted.
Congressional Republicans have cast the bill as a blessing for the middle class, an argument they will stress in their drive to hold onto their congressional majorities in next year's midterm elections. But one comment by Trump could complicate their messaging.
In praising the bill, Trump cited the deep cut in the corporate tax rate, from 35 percent to 21 percent.
"That's probably the biggest factor in our plan," the president said at the White House.
Within minutes, during House debate at the other end of Pennsylvania Avenue, Representative Richard Neal, jumped on Trump's remarks, calling it proof that Republicans were never interested in passing meaningful tax cuts for the middle class.
In a statement, Trump said: "By cutting taxes and reforming the broken system, we are now pouring rocket fuel into the engine of our economy."
Post-midnight vote
The Senate used a post-midnight vote Wednesday morning to approve the measure on a party-line 51-48 tally. Senate Majority Leader Mitch McConnell insisted the nation would respond positively to the tax bill.
"If we can't sell this to the American people, we ought to go into another line of work," he said.
In an eleventh-hour hiccup Tuesday, the Senate parliamentarian found that three minor provisions violated Senate rules, forcing lawmakers to strip them out.
House Republicans had passed the bill Tuesday with all voting Democrats in opposition. Because of the language the Senate removed, the House had to revisit the measure Wednesday because each chamber must approve identical legislation before it can be signed into law.
"People have been hit by the media and the Democrats on their TV screen that everyone is getting a big tax increase, and that's just not the case," Ryan said Wednesday on ABC's Good Morning America.
Starting next year, families making between US$50,000 and US$75,000 will get average tax cuts of US$890, according to an analysis by the nonpartisan Tax Policy Center. Families making between US$100,000 and US$200,000 would get average tax cuts of US$2,260, while families making more than US$1 million would get average tax cuts of nearly US$70,000, according to the analysis.
But if the cuts for individuals are allowed to expire, most citizens — those making less than US$75,000 — would see tax increases in 2027, according to congressional estimates.
Running up deficits
Ryan said Wednesday the GOP is willing to risk running up deficits with the aim of getting a higher annual economic growth rate.
Trump is aching for a big political victory after 11 months of legislative failures and nonstarters. The president tweeted his congratulations to GOP leaders and to "all great House Republicans who voted in favour of cutting your taxes!"
Congressional Republicans, who faltered badly in trying to dismantle Barack Obama's Affordable Care Act, see passage of the tax bill as crucial to proving to US citizens they can govern — and imperative for holding onto House and Senate majorities in next year's midterm elections.
"The proof will be in the paychecks," Senator Rob Portman said during the Senate's nighttime debate. "This is real tax relief, and it's needed."
Not so, said the top Senate Democrat as the long, late hours led to testy moments Tuesday night.
"We believe you are messing up America," New York Senator Chuck Schumer told Republicans, chiding them for not listening to his remarks.
The GOP has repeatedly argued the bill will spur economic growth as corporations, flush with cash, increase wages and hire more workers. But many voters in surveys see the legislation as a boost to the wealthy, such as Trump and his family, and a minor gain at best for the middle class.
Tax cuts for corporations would be permanent while the cuts for individuals would expire in 2026 to comply with Senate budget rules. The tax cuts would take effect in January, and workers would start to see changes in the amount of taxes withheld from their paycheques in February.
The top tax rate for well-off individuals would be lowered from 39.6 percent to 37 percent.
The legislation repeals an important part of the 2010 healthcare law — the requirement that all Americans carry health insurance or face a penalty — as the GOP looks to unravel the law it failed to repeal and replace this past summer. It also allows oil drilling in the Arctic National Wildlife Refuge.
The US$1,000-per-child tax credit doubles to US$2,000, with up to US$1,400 available in IRS refunds for families that owe little or no taxes.
The bill is projected to add US$1.46 trillion to the nation's debt over a decade. GOP lawmakers say they expect a future Congress to continue the tax cuts so they won't expire. That would drive up deficits even further.
Winners and losers from the GOP’s tax plan
Count President Trump among the personal winners in the US$1.5-trillion tax package that US Republicans in the House and Senate passed Wednesday. It's not only a political score for Trump but likely a windfall for his real-estate empire, too.
Oil drillers would also benefit. So would multimillionaire and billionaire owners of sports teams. Companies would enjoy a bounty from permanently lower tax rates. Lawyers and accountants will profit from the advice suddenly needed to guide clients through the tax plan.
The bill creates plenty of losers, too. An estimated 13 million US citizens are projected to lose health insurance. Commuters will no longer receive a perk that has saved them money. Some residents of high-tax states like New York, New Jersey and California will pay more in taxes.
And more than half of US households could face tax hikes in coming years. That's because their new tax breaks are set to expire after 2025. And their taxes could creep up because the IRS has been directed to use a less generous gauge of inflation in adjusting tax brackets.
Republican lawmakers have sold their far-reaching legislation as benefiting everyone in the long run because, they argue, it will speed up economic growth. But most economists say that any boost in growth would be modest in the long term. And most argue that at least some of the tax benefits will be undermined by the much higher budget deficits that help pay for them.
WINNERS
THE TRUMP ORGANIZATION
At least temporarily, companies with profits that double as the owner's personal income would enjoy a substantial tax break. Consider the Trump Organization. It consists of about 500 such "pass-through" entities, according to the president's lawyers. Rather than pay the top rate of nearly 40 percent, Trump would likely be taxed on these profits at closer to 30 percent.
The final bill also appears to specifically benefit the real-estate sector, the bedrock of the Trump family's wealth, with benefits extended to pass-throughs that own buildings but don't pay wages to workers.
The president's family didn't receive every possible benefit. The estate tax on inheritances, for example, will stay in place, though it will apply only to the portion of a family's estate that exceeds US$11 million — twice the previous level – at least through 2025. And the alternative minimum tax, which is intended to prevent the wealthy from exploiting loopholes to avoid taxes, would stay in place as well, though its higher thresholds would also be temporary.
ENERGY DRILLERS
It's no longer off limits to drill in Alaska's Arctic National Wildlife Refuge for oil and natural gas. Former US president Barack Obama had sought to protect the 19.6-million acres, a home for polar bears, caribou, migratory birds and other wildlife. But under the Republicans' tax plan, fossil fuel companies could tap into oil and gas reserves. Alaska Senator Lisa Murkowski and other Republicans insist that drilling can be done safely with new technology while ensuring a steady energy supply for West Coast refineries.
SPORTS TEAMS
Major sports teams will still be able to build and renovate their stadiums with tax-exempt municipal bonds. The House version of the tax bill had initially scrapped access to this form of debt by sports teams, a provision that drew objections from the NFL. But the final bill retains it.
Such tax-advantaged public financing should make it easier to have the Oakland Raiders, for example, move to Las Vegas and play in a new US$1.9-billion dome. Forbes estimates the Raiders, owned by Mark Davis, to be worth US$2.4 billion.
MAJOR CORPORATIONS
The tax rate for most companies would drop to 21 percent from 35 percent. This is a permanent rate cut, which, along with a shift to a lower rate on some foreign earnings, could help boost corporate profits. Not surprisingly, the stock market has soared in part over anticipation of these lower corporate taxes. The Standard & Poor's 500 stock index has risen nearly 24 percent since Trump's election last year.
TAX LAWYERS
Rather than close loopholes, the tax bill appears to create more of them. Tax lawyers and accountants will likely be besieged by clients looking for professional guidance in restructuring companies and incomes to avoid taxes. In fact, tax experts and lawyers who reviewed a prior version of the tax bill outlined a slew of loopholes in a 35-page report in which it warned that the bill would "allow new tax games and planning opportunities for well-advised taxpayers."
LOSERS
At the same time, many individuals and groups are likely to be on the losing end of the tax legislation. Among them:
THE UNINSURED
The tax bill removes a penalty that was charged to people without health insurance as required by Obama's 2010 health insurance law as a way to hold costs down for everyone. By eliminating this mandate, the tax bill will likely deprive 13 million people of insurance, according to estimates by the Congressional Budget Office.
The repeal of the health insurance mandate will help preserve revenue to pay for the tax cuts. The government would no longer have to subsidise as many low-income people receiving insurance. This change would generate US$314.1 billion over 10 years, according to the Joint Committee on Taxation.
COMMUTERS
It could get more expensive to ride the subway or park your car near work. Employers would no longer be able to deduct from their taxes the cost of providing parking or transit passes worth up to US$255 a month to workers. Bicycle commuters would also lose their benefit from companies.
Technically, companies could still offer this benefit. But under the tax bill, they will lose the financial incentive to do so. Such a change could have the effect of reducing ridership on public transit and possibly increase costs for riders on rail and bus systems.
HOMEOWNER IN HIGH-TAX STATES
The bill imposes a US$10,000 cap on taxpayers who deduct their state, local and property taxes — and the cap isn't adjusted for inflation. Currently, there is no limit on how much in state and local taxes you can deduct. Some Republican lawmakers in such high-tax states such as California and New York voted against the bill because their constituents' taxes could increase as a result of the provision, but the measure still passed.
TAXPAYERS AFTER 2025
Most US citizens would receive tax cuts initially. But the lower rates and a host of other benefits would expire after 2025. This effectively sets up an $83 billion tax hike for many millions of citizens in 2027. More than half of taxpayers would pay more in taxes that year, according to the non-partisan Tax Policy Center.
What's more, people's taxes could continue to creep up because the plan will adjust the tax brackets at a less generous measure of inflation than it formerly did. The slower indexing for inflation amounts to a US$400 billion tax hike between 2028 and 2037 that would help finance the lower corporate rates, Lily Batchelder, a New York University law professor and former Obama White House adviser, observed on Twitter.
Congress could decide years from now to extend the lower tax rates. But doing so would increase the deficit far more than the US$1.5 trillion now being estimated by Congress' Joint Committee on Taxation.
- TIMES WITH AGENCIES
Comments