Jubilant Republicans on brink of huge US tax overhaul as Senate passes bill
The sweeping legislation, which slashes the corporate tax rate and is predicted to increase the deficit, is set to land on President Trump’s desk before Christmas
Republicans are on the verge of passing the most significant overhaul of the US tax code since 1986, after the Senate approved the party’s plan on Tuesday evening and House leaders scheduled a Wednesday morning vote to send it to President Donald Trump.
The sprawling plan would cut the corporate tax rate dramatically and provide new breaks for other businesses. It also would lower income tax bills in 2018 for the vast majority of households, though the wealthy would see far more relief than the middle class and working poor.
The plan would revise nearly every part of the tax system by lowering income tax rates at all levels and restructuring deductions. And it extends beyond taxes and into health care by scrapping a central part of the Affordable Care Act.
Republican leaders appeared to ensure the bill’s passage Friday when they secured support from holdout Republican Senators Marco Rubio and Bob Corker.
“Congress is standing at the doorstep of a historic opportunity,” Senate Majority Leader Mitch McConnell said Tuesday ahead of the vote. “Here’s what we set out to do: Take money out of Washington’s pockets and put it back in the pockets of middle-class Americans.”
House Republicans thought they had finished their tax work on Tuesday afternoon when they passed a version of the bill 227 to 203. But the effort hit a snag Tuesday afternoon when the Senate parliamentarian ruled that three of its provisions violated that chamber’s Byrd Rule – guidelines on what types of legislation can pass with a simple 50-vote majority.
The Senate made a series of minor tweaks to the bill to comply with the Byrd Rule Tuesday before passing the bill, requiring the House to vote again as the two chambers must pass identical versions. The House vote is slated for Wednesday morning, and none of the changes are expected to cost the plan any Republican Party support.
Despite the delay, Republicans celebrated Tuesday in anticipation of their plan passing, their first major legislative victory of the Trump presidency.
Trump has for months pushed Republican lawmakers to send him a tax plan by Christmas and is expected to sign the measure at a ceremony shortly after it clears Congress.
“This is one of the most important pieces of legislation Congress has passed in decades … For all those millions of Americans struggling paycheck to paycheck, help is on the way,” House Speaker Paul Ryan said after the House vote. “This is a good day for workers … and a great day for growth.”
The core of the plan is a massive and permanent cut to the corporate tax rate, dropping it from 35 per cent to 21 per cent.
The bill also would cut individual tax rates for all income tax levels. Families earning less than US$25,000 a year would receive an average tax cut of US$60, while those earning more than US$733,000 would see an average cut of US$51,000, according to the non-partisan Tax Policy Centre.
Many of the breaks for individuals are set to expire in the coming years. Republicans set those expiration dates to comply with Senate limits on how much their legislation could add to the nation’s deficit, and they say a future Congress will extend the cuts or make them permanent.
But without intervention, the measure would raise taxes on 53 per cent of Americans by 2027, according to the TPC’s report.
The bill also restructures a complicated system of deductions many households and businesses use to lower their tax bills. The standard deduction, taken by many middle- and low-income households, would double, and a child tax credit would be expanded. But other money-saving provisions, including a deduction on interest paid on new-home mortgages and a provision allowing Americans to deduct what they pay in state and local taxes, would be curtailed.
Of the 12 Republicans in the House who voted against the bill, 11 represent districts in New York, New Jersey or California. Those states are expected to be hit hard by the bill’s reduction of the state and local tax deduction, which helps those in high-tax states.
“Many in my area could face higher taxes under this plan,” Representative Darrell Issa of California, one of the no votes, said in a statement before the vote. “Californians have entrusted me to fight for them. I will not make the incredible tax burden they already endure even worse.”
The bill also would reduce the estate tax, a levy on inheritances paid only by the wealthiest estates. Under the bill, a couple could pass on up to US$22 million in assets without their legatees having to pay the tax.
The bill also would void an Affordable Care Act requirement that nearly all Americans obtain some form of health coverage or pay a penalty. The change is projected to reduce government spending by US$300 billion over a decade but also eventually leave 13 million more people with no health insurance.
Republicans have touted their bill as a middle-class tax cut and have promised that it will produce enough economic growth to boost hiring and workers’ wages, and create enough revenue to keep it from enlarging the deficit.
In an analysis of an earlier version of the bill, the Joint Committee on Taxation, Congress’s official tax scorekeeper, projected that the bill would add US$1 trillion to the deficit over a decade, even when projected economic growth is taken into account. That figure would grow substantially if the individual tax cuts were extended, and Republicans predict that they will be.
The JCT projected that the earlier version of the plan would boost economic growth by 0.8 per cent over a decade, far lower than the 3 per cent growth Republicans on Tuesday promised their plan would unlock.
“We have not had a 3 per cent economy since before the last recession,” Ryan said before the vote. “Tax reform will get us a 3 per cent economy.”
Democrats unanimously oppose the plan but lack the votes to block it in either chamber. The sidelined minority’s members have spent months bashing the plan as a giveaway to corporations and the wealthy.
“Today is a terrible day for millions of hard-working people, but it is a great day for giant multinational corporations and billionaires who fund Republican campaigns across this country,” Senator Elizabeth Warren said on the Senate floor Tuesday ahead of the vote. “It’s not tax reform. It’s a heist.”
During the House vote, Treasury Secretary Steven Mnuchin and a handful of his staff members watched the proceedings from the public gallery. The Republican caucus rose in near unanimous applause after the final vote was counted, then went to congratulate Ryan and House Ways and Means Committee Chairman Kevin Brady with smiles and pats on the back.
There were signs of opposition, as well. A handful of activists sitting in the public gallery repeatedly interrupted Republicans as they introduced the tax measure in the House, and a separate group interrupted the Senate vote with chants of “kill the bill.”
Several of the House protesters were escorted out by Capitol Police officers.
“You are lying to yourselves!,” one activist yelled as she told House Republicans they needed to go back to school to learn maths. The barb elicited laughter among the Democrats on the House floor.
A woman in a wheelchair chanted, “Shame! Shame!” as she was removed from the gallery.
Polling suggests that the public is broadly sceptical of the plan. A CNN poll released Tuesday found that only 33 per cent of Americans support it, with 66 per cent of the country thinking it does more for the wealthy than for the middle class.
But Ryan said he had “no concerns whatsoever” about the bill’s polling, arguing that public support would swing in favour of the package once taxpayers see their after-tax incomes rise.
“Results are going to make this popular,” Ryan said.