US Tax reform on the way
Early after midnight on Saturday 2 December the U.S. Senate approved a tax legislation change – an important element of President Trump’s administration’ s plans to cut taxes for businesses. It is the largest reform of the American tax system since the 1980s. It is deemed to be signed by the U.S. President before Christmas.
People are going to be very, very happy…
…said Mr. President Donald Trump after leaving the White House following the Senate voting on Saturday. The Senate approved the bill in a 51-49 vote. “We have an opportunity now to make America more competitive, to keep jobs from being shipped offshore and to provide substantial relief to the middle class,” said Mitch McConnell, the Republican leader in the Senate [quoted after Reuters.com].
The Democrats who all voted against the bill were not that enthusiastic. They claim that last minute amendments made the bill poorly drafted. “Under the cover of darkness and with the aid of haste, a flurry of last-minute changes will stuff even more money into the pockets of the wealthy and the biggest corporations” – claimed Chuck Schumer a Senate Democratic Leader [quoted after Reuters.com].
The final version of the reform will now be reconciled by the Senate and the House of Representatives.
Significant reduction of Corporate Tax Rate
Based on the bill the Corporate Income Tax rate will be reduced from the current rate of 35% down to 20%. Also, future foreign profits of the U.S. based corporations will be exempt to a large extent. According to the Republican officials, the tax rate reduction is deemed to boost the recovering economy. The reform will also slightly cut the top tax rate for the highest paid individuals. Before the legislation was approved, number of last minute changes had been introduced, in particular:
- deductibility of state and local property tax up to $ 10.000
- partial sustaining of the alternative minimum tax (AMT), both for individuals and corporations,
- introduction of a five-year limit on letting businesses immediately write off the full value of new capital investments.