Trump, GOP Celebrate ‘Tax Cuts and Jobs Act’ Congress Approval

by Ike Obudulu Posted on December 20th, 2017

Washington, DC, USA : U.S. President Donald Trump and the GOP celebrated after Congress approved the ‘Tax Cuts and Jobs Act’, TCJA, Wednesday.

The measure passed the House 224 to 201 with overwhelming Republican support and unanimous Democratic opposition including ‘no’ votes from 12 GOP members. The House vote came after the Senate approved an identical measure early Wednesday morning, with all Democrats opposed and all Republicans present in support.

In the short-term, on average, no income group will see their tax-rate go up. In the long-term, however:

By 2027, “Except for those in the top one percent, households in each income group would be paying roughly the same amount of tax on average as under current law. And more than half would pay more in taxes than if the law had never changed.”

The plan would permanently drop the corporate tax from 35 percent to 21 percent, while also rewriting the individual tax rules to lower rates and restructure deductions. The plan would cut taxes in 2018 for the vast majority of households, with by far the largest benefits going to the wealthy. Many of the tax breaks are set to expire at the end of 2025, leaving a large section of the middle class to pay more in taxes.

Trump pushed Republicans to send him a tax overhaul by Christmas, and he touted the measure Wednesday.

“This bill means more take home pay,” Trump told reporters at the White House. “It will be an incredible Christmas gift for hardworking Americans.”

Trump may wait until January to sign the tax bill into law, according to Gary Cohn, director of Trump’s National Economic Council.

Waiting until January could help the White House avoid triggering a 2010 law known as “PAYGO,” or “pay-as-you-go.” The budget law requires spending cuts to Medicare and other programs if legislation is approved that’s projected to add to the deficit.

If Trump signed the tax bill into law before Congress adjourns in December, lawmakers could be forced to vote on the PAYGO waiver measure as soon as next month in order to avoid allowing the spending cuts to kick in. The reductions would cut spending on Medicare by $25 billion in 2018, according to the Congressional Budget Office.

Signing the tax bill into law in January would likely defer those spending cuts until 2019, giving Congress almost a year to come up with a solution.

The PAYGO rules can be waived if 60 senators vote in favor, but Republicans will only control 51 Senate seats next year and all Democrats voted to oppose the tax bill.

And with a year to work on a waiver, Democrats could use these spending cuts as a political cudgel for much of 2018, as they square off with Republicans over the federal budget. Republicans push for other spending cuts during the year, which Democrats are already lining up to oppose.

The tax plan will lead to a number of changes next year, though the impact will not be clear for months.

The White House believes most Americans will begin seeing higher paychecks in February, once employers have adjusted the amount of money that is withheld from paychecks.

In April, Americans will file their taxes for the last time under the old rules, as they will be accounting for income they earned before the tax changes went into effect.

The White House and Republicans have promised the tax cuts will lead to more hiring and higher wages. They have also said the tax changes will lure many corporations back to the United States, incentivize them to manufacture more goods domestically, and make U.S. companies more competitive with foreign firms.

U.S. companies are expected to react in many different ways under the new tax regime. Some have already announced plans to use excess cash to repurchase stock, a boost for shareholders. Others have announced plans to expand and hire more workers.

Trump said Wednesday that the vast tax cut for corporations is “probably the biggest factor in our plan.”

The scope of these changes could determine whether the tax bill is seen as a benefit for the U.S. economy or a windfall for the wealthy, a narrative that will attract more attention as the November midterm elections near.

The Joint Committee on Taxation estimates that the tax cuts in 2018 will amount to $135 billion, a change that many economists believe will boost growth, at least temporarily.

But it will also add to the deficit, which was projected to be $563 billion next year without factoring in either the revenue loss or the economic growth from the plan. Multiple nonpartisan analyses have found the plan would add up to $1 trillion to the deficit over a decade, and far more if the individual tax cuts are extended.

Democrats have pilloried the plan throughout the process, saying it gives only limited benefits to the middle class while favoring the wealthy and corporations.

In 2018, taxpayers earning less than $25,000 would receive an average tax cut of $60, the nonpartisan Tax Policy Center found. Those earning between $49,000 and $86,000 would get an average cut of about $900; those earning between $308,000 and $733,000 would receive an average cut of $13,500; and those earning more than $733,000 would receive an average cut of $51,000.

The bill also would reduce the estate tax, a levy on inheritances charged only to the wealthiest Americans. Under the bill, a couple could pass on up to $22 million in assets without their legatees having to pay the tax.

The plan extends beyond taxes and into health care by scrapping a central part of the Affordable Care Act. The repeal of the financial penalty for not purchasing health insurance does not go into effect until 2019. Projections vary on how the mandate’s absence will affect the health care system, but the Congressional Budget Office has estimated it will result in 13 million fewer people having health insurance after a decade.

Trump heralded this aspect of the bill on Wednesday.

“When the individual mandate is being repealed that means Obamacare is being repealed,” he said.

Many Democrats and Republicans have said this is not true, though the change would mark the most substantial GOP step so far in dismantling President Obama’s signature law. All other aspects of the health care law would remain intact, and some Republicans have said they want to pursue new legislation that would lessen the impact of repealing the individual mandate.

House Republicans thought they had finished their tax work on Tuesday afternoon when they passed a version of the bill. 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. To comply with the Byrd Rule, the Senate made minor tweaks to the bill before passing it, requiring the House to vote again as the two chambers must pass identical versions.

EARLIER : Tax Cuts and Jobs Act Scales Senate, Heads to House, Trump Presser At 21:00 GMT – The GOP’s Tax Cuts and Jobs Act passed the US Senate in a 51-48 vote today, bringing President Trump to the brink of his first major legislative victory. The Senate debated and then voted on a tax bill – with only Republican Sen. John McCain sitting out – after it passed the House of Representatives just hours earlier. It now returns to the House for a final round of voting.

Earlier on Tuesday, the House of Representatives thought they had passed the bill themselves but due to a technicality, were forced to reschedule a vote for the following day.

A Tweet by POTUS, Donald Trump said that he will be holding a press conference at the White House if the final passage vote passes at the House:

“The United States Senate just passed the biggest in history Tax Cut and Reform Bill. Terrible Individual Mandate (ObamaCare)Repealed. Goes to the House tomorrow morning for final vote. If approved, there will be a News Conference at The White House at approximately 1:00 P.M.”

EARLIER : GOP Rolls Trump Backed Tax Cuts and Jobs Act Though House, Senate Next – By a vote of 227-203, the U.S. House passed the final version of Republicans’ $1.5 trillion tax overhaul on Tuesday afternoon. Senate Republicans are now set to debate the bill and could vote Tuesday evening.

The House vote fell largely along party lines. No Democrats voted in favor of the bill, as was the case when the House passed its initial version of the bill in November. Twelve House Republicans voted against the bill.

The bill will cut the top federal corporate tax rate drastically, from 35 percent to 21 percent, and also lower tax rates for many other Americans. According to a new report from the nonpartisan Urban-Brookings Tax Policy Center, those tax cuts would overwhelmingly benefit the richest Americans.

The revised and final Tax Cuts and Jobs Act, TCJA , bill would reduce taxes on average for all income groups in both 2018 and 2025. In general, higher income households receive larger average tax cuts as a percentage of after-tax income, with the largest cuts as a share of income going to taxpayers in the 95th to 99th percentiles of the income distribution. This is according to an estimate by Urban-Brookings Tax Policy Center.

On average, in 2027 taxes would change little for lower-and middle-income groups and decrease for higher-income groups. Compared to current law, 5 percent of taxpayers would pay more tax in 2018, 9 percent in 2025, and 53 percent in 2027.

The bill would also repeals the Affordable Care Act’s (ACA) individual mandate, but the distributional
estimates presented here do not include the effects of that provision.

The pattern of tax changes across income groups would be similar in 2025 (the last year before nearly all the individual provisions sunset) although the magnitude of average tax decreases would be slightly smaller for most income groups.

In 2027, the overall tax reduction would be just 0.2 percent of after-tax income. On average, relative to current law, low- and middle-income taxpayers would see little change and taxpayers in the top 1 percent would receive an average tax cut of 0.9 percent of after-tax income.

Some taxpayers would pay more in taxes under the proposal in 2018 and 2025 than under current law: about 5 percent of taxpayers in 2018 and 9 percent in 2025.

In 2027, however, taxes would increase for 53 percent of taxpayers compared with current law.

In 2018, taxes would be reduced by about $1,600 on average, increasing after-tax incomes 2.2 percent. Taxes would decline on average across all income groups. Taxpayers in the bottom quintile (those with income less than $25,000) would see an average tax cut of $60, or 0.4 percent of after-tax income. Taxpayers in the middle income quintile (those with income between about $49,000 and $86,000) would receive an average tax cut of about $900, or 1.6 percent of after-tax income. Taxpayers in the 95th to 99th income percentiles (those with income between about $308,000 and $733,000) would benefit the most as a share of after-tax income, with an average tax cut of about $13,500 or 4.1 percent of after-tax income. Taxpayers in the top 1 percent of the income distribution (those with income more than $733,000) would receive an average cut of $51,000, or 3.4 percent of after-tax income.

In 2025, the average tax cut would be almost $1,600, or 1.7 percent of after-tax income. The magnitude of the average tax cut as a share of after-tax income would be smaller in 2025 than in 2018 for most income groups, mainly because the tax system would be indexed to the slower-growing chain-weighted consumer price index and due to the phase-out of certain business tax cuts, and phase-in of certain business tax increases. Taxpayers in the bottom quintile would see an average tax cut of $70, or 0.4 percent of after-tax income. Taxpayers in the middle income quintile would receive an average tax cut of about $900, or 1.3 percent of after-tax income. Taxpayers in the 95th to 99th income percentiles would benefit the most as a share of after-tax income, with an average tax cut of almost $13,000, or 3.2 percent of after-tax income. Taxpayers in the top 1 percent of the income distribution would receive an average cut of about $61,000, or 2.9 percent of after-tax income.

In 2027, the overall average tax cut would be $160, or 0.2 percent of after-tax income, largely because almost all individual income tax provisions would sunset after 2025. On average, taxes would be little changed for taxpayers in the bottom 95 percent of the income distribution. Taxpayers in the bottom two quintiles of the income distribution would face an average tax increase of 0.1 percent of after-tax income; taxpayers in the middle income quintile would see no material change on average; and taxpayers in the 95th to 99th income percentiles would receive an average tax cut of 0.2 percent of after-tax income. Taxpayers in the top 1 percent of the income distribution would receive an average tax cut of 0.9 percent of after-tax income, accounting for 83 percent of the total benefit for that year.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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