Senate approves landmark US tax reform bill (almost)
The US Senate has passed Trump’s tax reform bill entailing the most drastic changes in US taxation since the 1980s, including a permanent tax cut for corporations but temporary tax relief for individuals.
The $1.5trn tax reform was first voted on in the House of Representatives and approved by a vote of 227 to 203, followed by a vote of 51-48 in the Senate, with all republicans in the upper chamber of Congress voting in favour and all democrats against it.
However, the House would have to vote on it again on Wednesday before having President Donald Trump sign it into law because the original bill, which was modified by the Senate, included three provisions contravening the so-called Byrd rule.
But in any case, the second house ballot was considered almost a formality, meaning Trump had clinched the first significant legislative victory of his presidency, although some reactions to the bill were quite tepid.
Nancy Pelosi, House minority leader said it is "the worst bill in history. An all-out looting of America, a wholesale robbery of the middle class." She also went on to describe it as one of the most scandalous acts of plutocracy in our history.
"There may also be some belated realisation that this bill won’t necessarily boost the US economy that much but will cause the US budget deficit to ballon. Of course, that could be USD-positive if it pushes US bond yields higher, but at what cost? Higher bond yields stemming from faster economic activity are a plus for a currency, but are higher bond yields stemming from government profligacy really a positive?," chipped in Marshall Glitter, head of strategy at ACLS Global.
Trump on the other hand, praised the Senate for passing the bill and repealing the “terrible individual mandate” (ObamaCare). He wants to give the American people a “big beautiful Christmas present”.
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 Terrible Individual Mandate (ObamaCare)Repealed.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.
— Donald J. Trump (@realDonaldTrump) 20 de diciembre de 2017
The bill would cut the top rate individual tax from 39.6% to 37% and lower the main corporate tax rate down to 21% (from 35%), but higher earning individuals were expected to benefit the most, although American companies' position relative to other industrialized economies - that have an average corporate rate of 22.5% - was set to improve.
On the negative side of the ledger, the new legislation was harshly criticised because it would limit tax deductions for home mortgages and local taxes and add over a trillion dollars to the government's debt pile.
The bill also attacked the heart of the Affordable Care Act, which required Americans get health insurance or pay a fine. It was expected that 13m Americans would drop their insurance as they would now no longer face a penalty.
Republicans have also added a measure to the bill allowing drilling for oil in parts of the Arctic that had been protected since the 1960s.
Chief market analyst at CMC Markets UK, Michael Hewson said that the reform could be seen as transformative or unfair: "There is no doubt that the US tax system needs some measure of reform, however that is where the consensus would appear to start and end.
"The wider debate is over whether the US economy needs this sort of fiscal stimulus at a time when economic growth is already trending above 2.5% and unemployment is at a multi-year low of 4.1%," he added.
"The big question now is whether having seen stocks rise in anticipation of legislation being passed, that the current momentum is maintained or we see a case of 'buy the rumour, sell the news' as we head towards the Christmas break," he concluded.