US tax reform push

 21 Oct 2017 - 11:24

The Peninsula

The US administration has cleared a critical hurdle on the way to rewrite the US tax code, after the Senate approved a multi-trillion dollar budget blueprint on Thursday. The Senate voted 51-49 to pass the budget resolution. 

The Senate’s passage of budget blueprint will help unlock a procedure that Republicans plan to overhaul the tax code. For the Republicans, the overhauling of American tax system is crucial to achieve their campaign promises.

Trump lauded the vote on Twitter, saying it would be the “first step toward massive tax cuts for the American people.” “The Budget passed late last night, 51 to 49,” he wrote yesterday morning. “We got ZERO Democrat votes with only Rand Paul (he will vote for Tax Cuts) voting against ... This now allows for the passage of large scale Tax Cuts (and Reform), which will be the biggest in the history of our country!”

US stock futures indicated a stronger session on Wall Street yesterday, after the Senate narrowly passed the blueprint. European shares rebounded from their worst day in two months. The passage of budget blueprint is seen as a move paving the way for the tax reform that many investors believe it will help keep the bull market alive.

The recently unveiled America’s tax code, which proposes to dramatically lower taxes on businesses and many households, is facing roadblocks on many counts. Chief among them is that the plan does not provide much detail on how to pay for a plan that analysts have estimated could cost trillions of dollars, according to the detractors. 

The framework, a joint product of the Trump administration and Republican leadership, proposes for lowering the corporate rate from 35 to 20 percent. It would also bring down the rate for so-called pass-through businesses to 25 percent. It proposes cuts to personal and business tax rates, in line with previous Trump campaign and House Republican proposals. 

Two Wall Street giants had openly come out against President Donald Trump’s tax reform proposals. Billionaire investor Warren Buffet and BlackRock Chief Executive Larry Fink suggested in separate interviews that the corporate rate may not have to be cut as deeply as proposed. “We have a lot of business…I don’t think any of them are non-competitive in the world because of the corporate tax rate”, Buffet told CNBC.

“What is being proposed is a pretty large expansion of our deficits.” Fink told Bloomberg TV.

IMF has issued a caution on the US tax reforms. Going by the overall debt level and the off-the-balance-sheet obligation of the US, the fund feels that ‘whatever the tax reform plan looks like’, it should not increase the deficit. ‘Over the medium term, “tax reform” should be revenue enhancing’, IMF chief economist Maurice Obstfeld said after publishing IMF’s latest global economic forecasts last week.

President Donald Trump’s budget director Mick Mulvaney was quick to react to IMF and other critics. He accused them of wanting the reforms to fail. The sceptics of the plan were “heavily invested in it not working out”, he said.

The Democrats believe that the tax cuts would largely help the wealthiest Americans. They are also sceptical about the White House’s claim that corporate tax cuts would raise wages for the middle class.