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United States

Republicans ram through their plan to overhaul US tax system but law may stall in the Senate

PUBLISHED : Friday, 17 November, 2017, 7:15am
UPDATED : Friday, 17 November, 2017, 7:26am

Republicans rammed a US$1.5 trillion overhaul of Americans’ business and personal income taxes through the US House of Representatives on Thursday, edging the nation toward its biggest rewrite in three decades and handing President Donald Trump and their party possibly their first major legislative triumph after 10 bumpy months of controlling government.

However, the mostly party-line 227-205 vote masked more ominous problems in the Senate. There, a similar package received a politically awkward verdict from non-partisan congressional analysts showing it would eventually produce higher taxes for low- and middle-income earners but deep reductions for those better off.

Those projections came a day after Wisconsin Senator Ron Johnson became the first Republican senator to state opposition to the measure, saying it did not cut levies enough for millions of partnerships and corporations. With at least five other Republican senators yet to declare support, the bill’s fate is far from certain in a chamber the Republicans control by just 52-48.

Even so, Republicans are hoping to send a compromise bill for Trump to sign by Christmas.

“Now is the time to deliver,” the White House said in a written statement that underscored the party’s effort to maintain momentum and outrace critics. Those include the AARP lobby for older people, major medical organisations, property agents – and, in all likelihood, all Senate Democrats.

With this summer’s crash of their effort to dismantle President Barack Obama’s health care law, Republicans see a successful tax effort as the best way to avert major losses in next year’s congressional elections. House Republicans conceded they are watching the Senate warily.

“Political survival depends on us doing this,” said Representative Kevin Cramer, a Republican from North Dakota. “One of the things that scares me a little bit is that they’re going to screw up the bill to the point we can’t pass it.”

Fears over proposed US tax cuts overblown

The House plan and a comparable proposal Republicans hoped to push through the Senate Finance Committee by week’s end would deliver the bulk of tax reductions to businesses.

Each version would cut the 35 per cent corporate tax rate to 20 per cent, while reducing personal rates for many taxpayers and erasing but also shrinking deductions. Projected federal deficits would grow by US$1.5 trillion over 10 years.

As decades of Republicans have done before them, Republican lawmakers touted their tax cuts as a boon to families across all income lines and a boost for businesses and the entire economy.

“Passing this bill is the single biggest thing we can do to grow the economy, to restore opportunity and help those middle income families who are struggling,” said House Speaker Paul Ryan of Wisconsin.

But Democrats said the measure would disproportionately help the wealthy and mean tax increases for millions. The House legislation would reduce and ultimately repeal the tax Americans pay on the largest inheritances, while the Senate would limit that levy to fewer estates.

The bill is “pillaging the middle class to pad the pockets of the wealthiest and hand tax breaks to corporations shipping jobs out of America,” declared House Minority Leader Nancy Pelosi of California.

Thirteen House Republicans – all but one from high-tax California, New York and New Jersey – voted “no” because the plan would erase tax deductions for state and local income and sales taxes and limit property tax deductions to US$10,000. Defectors included House Appropriations Committee Chairman Rodney Frelinghuysen of New Jersey, who said the measure would “hurt New Jersey families.”

Trump travelled to the Capitol before the vote to give House Republicans a pep talk.

“He reminded us that is why we seek these offices,” said Representative Steve Womack of Arkansas. Participants said he also told them he’d already spoken to Johnson, the dissenting Republican senator, and said, “He’ll come around.”

Besides Johnson, Republican Senators Susan Collins of Maine, Jeff Flake and John McCain of Arizona, Bob Corker of Tennessee and Lisa Murkowski of Alaska have yet to commit to backing the tax measure.

As the Senate Finance Committee worked on its plan, Congress’ Joint Committee on Taxation estimated it would mean higher taxes beginning in 2021 for many families earning under $30,000 annually. By 2027, families making less than $75,000 would face tax boosts while those making more would enjoy lower levies.

Republicans attributed the new figures to two Senate provisions.

One would end the measure’s personal tax cuts starting in 2026, a step Republican leaders took to contain the measure’s costs. The other would abolish the “Obamacare” requirement that people buy health coverage or pay tax penalties.

Eliminating those fines is expected to mean fewer people would obtain federally subsidised policies, and the tax analysts count a reduction in those subsidies as a tax increase. The non-partisan Congressional Budget Office has projected that would result in 13 million more uninsured people by 2027, making the provision a political risk for some lawmakers.

Republicans on the Finance panel showed no signs of backing down. They said the same Taxation Committee tables showed that higher earners were still bearing a large share of the overall tax burden and that except for the halted health subsidies all income groups would get tax breaks.

Ending the personal tax cuts for individuals in 2026, derided as a gimmick by Democrats, is designed to pare the bill’s long-term costs to the Treasury. Legislation cannot boost budget deficits after 10 years if it is to qualify for Senate procedures that bar bill-killing filibusters.

Both chambers’ bills would nearly double the standard deduction to around US$12,000 for individuals and about US$24,000 for married couples and dramatically boost the current US$1,000 per-child tax credit.

But each plan also would erase the current US$4,050 personal exemption and annul or reduce other tax breaks. The House would limit interest deductions to US$500,000 in the value of future home mortgages, down from today’s US$1 million, while the Senate would end deductions for moving expenses and tax preparation.