Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Trump’s first major legislative victory

The Day’s experts on who wins and who loses from the US biggest tax cuts since 1986
7 December, 2017 - 12:20
REUTERS photo

The US Senate voted 51-49 the other day to pass a tax overhaul bill that envisions the biggest tax cuts since 1986. After the House of Representatives had voted for its version of the tax reform before, the US Congress has thus paved the way to President Donald Trump’s first important legislative victory.

The key provision of the reform is a proposal to cut the corporate tax rate from 35 to 20 percent. The Republicans believe this will allow the US economy to increase its competitiveness and help return trillions-dollar-worth profits of US corporations from abroad. There are no differences between the members of both Congress chambers about this matter. However, they do differ on the reorganization of natural persons’ taxation and on a number of relaxations.

Now the two chambers are to coordinate their bills and present them in a single text which will be put to a vote and submitted for the president’s signature after being approved by parliament. Trump said earlier that the reform would be adopted before the end of this year. He promised that it will be “the biggest tax cut in the history of our country.”

The Day requested some US experts to comment on the significance of the new tax law and say who stands to benefit the most from this.

“THIS BILL WAS WRITTEN FOR THE WEALTHY REPUBLICAN DONOR CLASS”

Lincoln MITCHELL, political scientist, former professor of the Columbia University, author of the book The Democracy Promotion Paradox:

“If enemies of the US crafted a piece of tax legislation that sought to weaken our economy, make the lives of ordinary Americans more difficult, exacerbate the wealth gap between the richest American and everybody else, and make America less stable and less competitive internationally, they could not have done much better than this bill. The Republican Party had no hearings, almost no discussion and did not even let the Democrats, let alone the American people, see the full bill in time to discuss it. They did that because they know just how bad this bill is for ordinary Americans. This bill was written by, of and for the wealthy Republican donor class. If the first Republican President, Abraham Lincoln, were alive today and saw this abomination, he would weep for the country he fought so hard to preserve.”

“BUSINESS WILL BE A BIG WINNER FROM THE LEGISLATION”

John HERBST, Director, Dinu Patriciu Eurasia Center, Atlantic Council; former US Ambassador to Ukraine; Washington, D.C.:

“The business tax rate is cut from 35 percent to 20 percent. So business will be a big winner from the legislation. Estimates are that 70 percent of the middle class will experience a tax cut. The upper middle class will face a tax increase. Republicans argue that the business tax cut will increase productivity and growth. The democrats claim that the tax bill will increase the national debt by $1.5 trillion over ten years.

“Few bills pass congress with most legislators reading the whole document. This bill holds to the normal pattern. Such practice is also not unusual.”

“THE BILL’S TAX CUTS WILL LARGELY BENEFIT THE WEALTHY”

Steven PIFER, senior fellow in the Arms Control and Non-Proliferation Initiative, Brookings Institution:

“While a lowering of the corporate tax rate makes sense, most assessments agree that the bill’s tax cuts will largely benefit the wealthy, while taxes in the 2020s on the poor and lower middle class will increase. One effect of the bill is that some 13 million Americans may lose health care insurance, while insurance premiums will rise. The bill will add at least 1 trillion dollars to the US deficit.

“This was not the Senate’s finest hour. It is hard to escape the conclusion that Republicans – who have controlled both houses of Congress since President Trump took office but have passed no major legislation in that time – are desperate to pass a tax reform bill so that they can claim a legislative achievement, almost regardless of what the bill does to the tax system.”

“THESE CHANGES SHOULD ENCOURAGE ECONOMIC GROWTH AND JOB GROWTH IN THE U.S. OVER TIME”

Aubrey JEWETT, professor, Department of Political Science, University of Central Florida:

“Congress is on the verge of passing a major tax reform bill. Both the Senate and the House have passed different versions and the final details will be worked out in a conference committee made up of both House and Senate members. While we don’t know the exact details yet, we can make educated guesses about the impact of the tax plan.

“This will be a major tax overhaul with one of the largest tax cuts in US history. The biggest winners will be US corporations. The current US corporate income tax is 35 percent which is the third highest in the world (the worldwide average is just 22.6 percent). The Republican tax plan will likely slash the corporate income tax rate to 20 percent. In addition the US will switch from a worldwide tax system for corporations (requiring US corporations to pay income tax on earnings earned anywhere in the world) to a territorial system (requiring payment on earnings only earned in the territorial United States). These two changes should spur corporations to bring more of their profits back to the US rather than keeping them abroad and to return more dividends to stockholders, and increase pay to workers. Both these changes should encourage economic growth and job growth in the US over time.

“Rich Americans (who pay the vast majority of US income taxes currently) are also winners in this tax reform – both the House and Senate would cut tax rates for wealthier people. Most middle income earners will see cuts in their tax bills as well, but some might see actual increases in their taxes depending on what deductions they normally claim. The tax reform bill proposes to do away with personal exemptions and a number of tax deductions but also increases the standard deduction. So depending on the situation 15-20 percent of middle income earners may actually see their taxes increase. Poor Americans pay almost no income taxes already and thus will not receive many if any benefits from the new tax reform.

“It is also important to note that the Senate version of the tax bill would make most of the tax cuts temporary in order to follow Senate rules designed to keep the national debt from getting too much worse over time (the tax cut will increase the deficit by about $1.5 trillion over a decade, but some of that will be offset by greater economic growth due to the tax cut). If the tax cuts actually are allowed to expire after 2027 the majority of middle income residents would end up with higher tax bills rather than lower tax bills.

“In order to ensure passage of the tax reform bill, the Senate took a number of procedural shortcuts. The short cuts are legal under Senate rules, but they make it highly unlikely that any Senator had actually read and completely understood the 515-page tax bill before they voted on it. Unfortunately, this is often the case in US politics for big lengthy complex bills. Senators usually have to rely on the committee analysis and their own office staff to go through the bill and provide summaries of the important and/or controversial parts of the bill. Some senators definitely voted for the bill because it included specific changes that would help influential businesses or individuals in their states.”

By Mykola SIRUK
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