The Strategist

The US Senate may postpone corporate taxes cuts until 2019

11/09/2017 - 14:09

Representatives of the Republican Party in the US Senate may delay implementation of the key point of the tax reform initiated by Donald Trump, namely, a reduction in the corporate tax rate until 2019. The own reform project that senators are to submit today will be very different from the bill prepared by the Republican majority of the House of Representatives. This means that the White House’s plans to hold a unified document through Congress before the New Year may be in jeopardy.

Alex Proimos
Alex Proimos
Unlike colleagues from the lower house, the senators are tightly bound by the requirement of budget neutrality. According to the so-called Byrd rule, a bill passed in the Senate by a simple majority of votes should not increase the federal budget deficit beyond the ten-year budget window. Otherwise, at least 60 votes will be required to approve it, which will mean a failure of reform in the current situation (52 seats for Republicans, 46 for Democrats, 2 for independent ones). At the same time, according to the calculations of the independent Committee for the responsible federal budget, implementation of the provisions of the bill submitted last week in the House of Representatives will lead to an increase in the budget deficit in 2028 by $ 155 billion.

Recall that the bill, prepared in the House of Representatives, provides for a reduction in corporate income tax from 35% to 20% from 2018. The number of tax categories for individuals is supposed to be reduced from seven to four: 12%, 25%, 35%, 39.6%. Approved by lawmakers in October, the ten-year budget plan provides for an increase in the deficit (and public debt) by $ 1.5 trillion. However, according to the reform’s authors, it should pay back itself, as the economic growth stimulated by it will make it possible to compensate for the falling incomes of the budget.

Now, Republican senators can either declare a temporary tax cut (which will belittle willingness of the business to invest and not achieve the desired economic growth), or try to drastically reduce the estimated budget losses. According to the Washington Post, the situation may postpone the anticipated 15 percent reduction in the corporate tax rate (costing a budget of $ 845 billion) from 2018 to 2019. The Senate suggests a more drastic cut in federal and local tax benefits than is provided for in the draft lower house, including real estate tax, and also intends to maintain a seven-stage tax scale of income tax instead of a four-stage one. The Senate bill will also not include temporary tax deductions for families offered by their counterparts, although in general the authors will try to make the regime more beneficial for small businesses and middle-income households.

It is expected that Republicans from the House of Representatives can submit their bill to the vote next week, but then both chambers of Congress will have to agree on a unified version - before the document goes to President for signature. Considering significant differences, it's difficult to do it by the end of December, as originally suggested by the White House.