The Republicans at the helm of the U.S. government are on the verge of carrying out their pledge to cut corporate and individual taxes, creating a potentially defining issue in the 2018 election that will determine control of Congress. They have reached agreement on a final version of the bill they expect will win enough votes in the House and Senate to advance to President Donald Trump’s desk.
1. What are the next steps?
The House and Senate will vote, perhaps this week, to approve the final, unified version of the bills they passed on Dec. 2 (Senate) and Nov. 16 (House).
2. When would lower tax rates take effect?
Assuming the tax measure is law by year’s end, its major provisions -- including cuts to individual and corporate rates -- would take effect on Jan. 1. Many taxpayers might not notice them until they file their 2018 taxes in the early months of 2019.
3. Will this get done by year’s end?
The days are dwindling, but Republicans are making progress. On the website PredictIt on Monday, bettors were assigning an 87 percent probability to Congress passing a corporate tax cut by the end of 2017, up from 70 percent on Dec. 8.
4. What’s the deadline?
You wouldn’t know it from all the rushing, but there really isn’t one. This term of Congress runs through 2018. The need for speed is almost entirely driven by Republicans having a heavy political incentive to pass tax cuts after failing to achieve any other major legislative victory over the past year. Lawmakers are counting on being able to present the tax cuts to voters while running for re-election in 2018.
5. What’s in the final tax bill?
The corporate tax rate, currently 35 percent (though lower in practice due to various tax loopholes) would drop to 21 percent. Tax rates on five of the seven individual income brackets would go down as well -- though unlike the corporate tax cut, the one for individuals will expire after 2025. Companies would be allowed to fully and immediately deduct the cost of their spending on equipment until 2023. Money "repatriated" by companies would be taxed at 15.5 percent (for cash) and 8 percent (non-cash) rather than at the higher corporate rate. The requirement that most people have health insurance or pay a penalty -- a cornerstone of the 2010 Affordable Care Act, also known as Obamacare -- would be repealed. Fewer multimillion-dollar estates would be subjected to the 40 percent inheritance tax until 2026, when thresholds would return to today’s levels.
6. Could anything still sink the bill?
Republican leaders say they’re confident the votes will be there -- even in the Senate, where their 52-48 majority can withstand no more than two dissenters (assuming no support from Democrats). There was one "No" vote, by Bob Corker of Tennessee, when the Senate passed its initial bill. But Corker, who said he was concerned about reduced tax revenue increasing federal budget deficits, has said he will for the final bill. In the House, Republican leaders have a cushion of about 20 votes from their party that they can afford to lose, depending on how many members are present. Only 13 House Republicans voted against the House’s initial tax-cut bill, including 12 from New York, New Jersey and California, high-tax states that may lose the most from plans to repeal the deduction for money spent on state and local taxes, except for up to $10,000 spent on property taxes plus either sales or income taxes.
7. Would a tax cut make the economy grow faster?
Trump says it will help U.S. economic growth, which has been stuck at 2 to 3 percent, soar "to 4, 5 or even 6 percent, ultimately.” Federal Reserve Chair Janet Yellen, by contrast, predicted "not a gigantic increase in growth." In a Bloomberg News survey, economists said the planned cuts in the original House bill would likely boost U.S. economic growth by about one-quarter of a percentage point in 2018. An analysis by the Joint Committee on Taxation found that the Senate bill would generate enough economic growth to lower its $1.4 trillion revenue cost by only about $407 billion over a decade, leaving a 10-year revenue loss of roughly $1 trillion.
The Reference Shelf
- Everything you need to know about the final bill.
- A look at corporate winners and losers.
- The tax legislation breaks Trump’s campaign promises.
- The Senate bill had something for every Republican to hate.
- A QuickTake Q&A on chained CPI, which Bloomberg View columnist Barry Ritholtz calls "the increase hiding in the Republican tax cuts."
- A QuickTake Glossary of tax terms to know.