President Trump promised to give a “big, beautiful” Christmas present to the American people, and Congress has now delivered with historic tax reform legislation, the first in more than three decades.
Assuming there is a successful re-vote on the bill in the House on Wednesday – necessitated by procedural objections and subsequent removal of three minor elements of the bill approved by the Senate Tuesday evening – the bill will need only President Trump’s signature to become law.
This landmark legislation, reconciling House and Senate bills passed in recent weeks, was approved in the House by a vote of 227-203 (presumably the same margin they will retain in Wednesday’s re-vote), and the Senate followed suit as the clock approached midnight by a tally of 51-48. Every Senate Republican voted in favor of the bill – quite an accomplishment given the broad range of objections from several GOP Senators – while every single Democrat in both the House and Senate opposed it. The President is expected to put the finishing touches on the bill with a grand signing ceremony at the White House either later this week, or possibly in early January for maximum media exposure in the new year.
This will likely be viewed by historians as the most radical reform of corporate tax law in modern history. Indeed, this legislation will particularly benefit both small and large businesses – reducing the corporate tax rate from one of the highest in the world – 35% – to one that is competitive in a global economy – 21% – motivating businesses to increase investment and jobs. And just as important are the incentives to bring back to America many of the trillions of corporate dollars parked overseas because of the current tax code.
Tax cuts for individuals are not as dramatic, but at least 80% of Americans will see their taxes reduced. The average family making the average household income – $73,000 – will experience a savings of more than $2000 per year. The standard deduction to which every individual, couple or household is entitled is doubled – from $12,000 to $24,000. The child tax credit, taken directly off the bottom line of your tax return, has also been doubled – from $1000 to $2000 per child. The only real losers are those in Democrat-controlled high-tax states who will no longer be able to deduct all of their state, local and property taxes on their federal returns. The new ceiling for such deductions is $10,000.
But one element of this bill which has flown largely under the radar is the elimination of the Obamacare individual mandate. Americans will no longer be penalized for refusing to purchase a government-authorized health insurance plan. This effectively plunges a knife through the heart of the Affordable Care Act, which has been dying a slow and painful death, and will go a long way toward compensating for the GOP’s repeated failures to repeal and replace Obamacare in 2017.
At the same time, the promised simplification of the tax code, which would allow the great majority of Americans to file their tax returns on a postcard, was not delivered in this reform. The legislative wrangling necessary to pass the bill led, as usual, to concessions which maintained many of the current tax deductions.
Like most major legislation in our constitutional republic with its inherent checks and balances and resulting need for compromise, this bill is imperfect. But for an economy already on the rise with a whopping 35% jump in the stock market since Trump was elected, the lowest unemployment rate of the 21st century and two consecutive quarters of three percent growth – a six month run never achieved in the eight years of the Obama presidency – the reformed tax code will almost certainly add considerable momentum to an economy which appears ready to swing into high gear.
For what it’s worth, the New York Federal Reserve had already predicted a fourth quarter growth rate of four percent prior to passage of this tax reform legislation. Continued growth in the three to four percent range will by itself render moot the forecast of an increase in the federal debt of $1.5 trillion over the next ten years resulting from this legislation, because the added tax revenues which would flow into government coffers in a robust economy with rising employment would more than offset deficits predicted from the cautious government forecasts of less than two percent growth.
As Barack Obama famously reminded Republicans early in his administration, elections have consequences. And while the appointment of Neil Gorsuch and a slew of constitutionalist federal judges, unprecedented deregulation, enhanced immigration enforcement and a very different approach to foreign policy have highlighted the work of President Trump, this historic reform is the most consequential legislative result of the astounding 2016 election, when voters shocked the world by handing full control of the federal government to Trump and the GOP.
Does this mean Republicans are likely to maintain control of Congress in 2018? It depends which historical truth prevails: that the party winning the presidency almost always loses a bunch of seats in the subsequent midterm elections, or that, when it comes down to which issue matters most to voters, “it’s the economy, stupid.”
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