The House of Representatives passed a bill that will result in the largest overhaul of the U.S. tax system in 31 years, a plan that would reduce the corporate tax rate to its lowest point since 1939 and cut individual taxes for most households by 2018.
In addition, the bill will increase the child tax credit , repeal the alternative minimum tax, abolish the estate tax by 2025, and transition the U.S. system to efficiently tax multinational corporations. The plan also would raise taxes on some individuals by removing personal exemptions and deductions: student loan interest, state/ income taxes, and medical expenses. Overall, the bill will aim to reduce federal taxes by $1.4 trillion over the next decade.
The 227-205 House vote was a victory for the GOP. Republicans are aiming to complete the new tax law before the end of 2017. Republicans are projecting the tax provisions would promote faster economic growth and see it as essential to retaining control of both chambers of Congress in next year’s mid-term elections.
The political narrative of the GOP, along with support from business groups prompted Republicans to pass the bill. Thursday’s vote came two weeks after Republicans revealed the first version of the tax bill. The chances of finishing major structural changes to the tax code now appear within range. However, this will depend on the ability of the Senate to pass the same bill.
In the Senate, Republicans have 52 seats. Therefore, they can’t afford to lose any more than two votes as long as Democrats remain unified in opposition. The Senate proposal includes other provisions, including temporary changes to alcohol taxation and a new tax credit for employers who provide family leave. If the Senate passes the bill, it must be reconciled with the House version in the Conference Committee (composed of senators and house members).
According to the nonpartisan Joint Committee on Taxation, the House plan will provide tax cuts for every income group in 2019. Under the provisions, 8% of households would pay more in 2019 and that proportion would rise to 20% over time. For middle-income households, earning between $75,000 and $100,000, 84% would get a tax cut in 2019 and 66% would see a tax cut by 2027, 11% would see a tax increase in year one, and 26% would see a tax increase by 2027.
“The ability of the GOP to pass the long-awaited Tax Reform Bill is a big success. The reform bill now lies in the hands of the Senate and there is still much work to be done” said Keith Knutsson of Integrale Advisors.