Donald Trump’s Republican Party has an absolute majority in both the House of Congress and the Senate which, theoretically, makes it straightforward to pass bills into law – the rub is that the President is not well-liked by all sections of his own party.
The changes to the US tax system are the most extensive since the days of the Reagan presidency in the 1980s. The cuts to corporation tax have been heavily criticised by Democrats claiming that they help corporations and the rich at the expense of ordinary citizens. The changes see the threshold for individuals paying the highest level of income tax more than double to €1 million; and corporation tax is being slashed from 35% to 20%
According to the Tax Policy Centre, the top 1% of US tax payers (i.e. the richest) will see 21% of the tax benefits in the course of next year with the advantage moving to 50% by 2027. Whilst those on more modest incomes will also benefit from reduced taxes, the centre does not think that this will be enough to produce a significant boost in consumer spending.
The justification for the cut in corporation tax is that it would free businesses up to invest more in the economy (right…) and could lead to the repatriation of hundreds of billions of Dollars currently held overseas to avoid paying the current 35% rate of taxation.
The tax give-away will generate a vast hole in public finances due to the reduced tax take, but proponents of the change argue that increased investment levels will stimulate the economy making up for and surpassing the shortfall.
The stock markets in the US hit fresh highs in the wake of the passage of the tax reforms, however, the details of the changes will still need to be thrashed out in both the Senate and Congress.