Trump tax victory sets up 2018 electoral battle

$1.5tn tax cuts package criticised by Democrats as favour to wealthy Republican donors

The Republican-led US Senate approved a sweeping, $1.5 trillion (€1.27 trillion) tax bill on December 20th, moving their party and President Donald Trump a step closer to the largest overhaul of the US tax code in more than 30 years.


US president Donald Trump secured the biggest win of his presidency on Wednesday as Republicans passed the most sweeping US tax overhaul since the 1980s, stirring fierce partisan disagreement that is set to dominate electoral battles next year.

Mr Trump was a pen stroke away from fulfilling one of his central campaign pledges by signing a $1.5 trillion (€1.27 trillion) tax cut into law, after the House of Representatives passed the legislation on Wednesday afternoon, hours after the Senate approved it in a post-midnight vote.

The vote gives the president a longed-for legislative victory to carry into his second year, one whose scope matches the radical reforms of healthcare and Wall Street regulation achieved by his predecessor Barack Obama.

But the tax bill is already as divisive as Mr Obama’s achievements, ensuring 2018 will be dominated by electoral sparring over whether it will help middle-class families, as Republicans claim, or will deliver further riches to the wealthy and powerful, as Democrats say.

“I promised the American people a big, beautiful tax cut for Christmas,” Mr Trump said. “With final passage of this legislation, that is exactly what they are getting.” The president held a White House event with congressional leaders on Wednesday afternoon to mark the bill’s passage, although it was unclear when he would formally sign it into law.

Republicans say their package, the most substantial since Ronald Reagan’s reforms of 1986, is vital to energising the US economy and they view it as crucial to their chances of keeping control of Congress in midterm elections next November.

Cut for corporations

According to a CNN poll this week, however, some 55 per cent of voters opposed the plan, up 10 points from early November, while 33 per cent favoured it.

The centrepiece of the package is a big cut for corporations, which will see their headline income tax rate plunge from 35 per cent to 21 per cent, bringing the US broadly into line with the average rate in the developed world.

AT&T responded by saying it would invest “an additional $1 billion” in the US in 2018, and pay $1,000 bonuses to 200,000 of its US employees.

Dennis Muilenburg, chief executive of Boeing, predicted that the reforms would “unleash economic energy” in the US, adding that the Chicago-based company would immediately make $300m in new investments in the US as a result, in workforce development and charitable giving.

For individual taxpayers, analysts say long-term gains from the bill would be skewed towards the richest Americans, with the middle class – which Mr Trump has insisted is his priority - seeing significantly less benefit.

The president tweeted that the “fake news” media was demeaning the bill.

The bill passed the House by 224 to 201 and the Senate by 51 to 48 and did not receive a single vote from Democrats.

Paul Ryan, the Republican speaker of the House, said families making the median household income would get a $2,059 tax cut next year. Mitch McConnell, the Senate majority leader, said: “If we can’t sell this to the American people, we ought to go into another line of work.”

Democrats ramped up their condemnation of the bill as a favour to Republicans’ wealthy friends and political donors. “We believe you are messing up America,” said Chuck Schumer, the top Senate Democrat.

Nancy Pelosi, the Democratic leader in the House, tweeted: “Republicans are about to take a victory lap to celebrate pillaging the future of America’s children. #GOPTaxScam.”

Clear win

Stephen Myrow, a former Treasury official under George W Bush who is now at Beacon Policy Advisors, said it would probably not be clear to many voters how the bill was affecting them until 2019.

But he said: “Whether or not people feel it does something for them, it enables Republicans to reclaim the governing narrative they lost after failing to repeal Obamacare. People like winners.”

Mr Trump had pressed Republican lawmakers to agree on the tax deal, seeking to secure a clear win 11 months into a presidency marked by the Russia investigation led by Robert Mueller, and limited progress in trade wrangles and building a US-Mexico border wall.

On Monday the Tax Policy Center, a US think-tank, said the bill would reduce taxes for all income groups in 2018, increasing average after-tax income by 2.2 per cent.

But in 2027, the year after most of the individual tax provisions expire, it said low- and middle-income Americans would see little change in their tax bills versus current law, while taxpayers in the top 1 per cent would receive an average cut of 0.9 per cent. – Copyright The Financial Times Limited 2017