Tax reform “just days away” says President Donald Trump as Congress scrambles to bring bill before Christmas
Businesses in the US and abroad are bracing for a major upheaval in the tax system as President Donald Trump tries to rush through a vote on $1.5 trillion in tax cuts before Christmas.
Trump today said Congress is “just days away” from delivering on its campaign promise.
The President said he would deliver to “the American people a giant tax cut for Christmas. And when I say ‘giant’, I mean ‘giant’.”
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The centrepiece of the reform package will be a big tax cut for US businesses, with the headline tax rate dropping from 35 per cent to 21 per cent.
The reforms will also dramatically change the tax treatment of firms’ offshore cash piles: a new one-off tax on deferred foreign earnings of 15.5 per cent for liquid assets while tempting firms to repatriate money and invest in the US. The tax came in higher than previously expected.
If the Republican party manages to pass the bill by Friday it would give Trump his first major legislative victory after a year in which big attempts at reform, most notably in healthcare, have repeatedly failed.
Trump claimed the “greatest benefit will be for jobs and for the middle class”, but political opponents in the Democrat party said it would mainly benefit large corporations and wealthy Americans.
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The White House claims a typical family of four earning $75,000 would see more than $2,000 in income tax cuts, halving its tax bill. Meanwhile, on-partisan analysts at the Congressional Budget Office estimate that enacting the bill would increase the US government’s spending deficit by $1.4 trillion over the next 10 years.
There will inevitably be winners and losers from the reforms, but the changes will further add to the tangle of rules in the US tax system, according to Adam Benson and Al Liguori, managing directors at Alvarez & Marsal Taxand.
They said: “The proposals add significant complexity to multinationals and pass-through entities, but for domestic-focused corporations, there is less additional complexity, and the reduction in the corporate tax rate will be a big benefit.
“Shareholders of large US businesses (public or private) will likely see a lot of the benefits,” they added.
This bill, if passed, would represent “the most fundamental tax reform in over 30 years”, according to Craig Hillier, UK international tax services leader at accountants EY.
He said: “UK companies with large domestic operations in the US may find their overall tax liability reduced, potentially freeing up cash for investments or shareholder returns.”
Congress this week also faces the latest deadline to pass a stopgap budget by Friday to ensure the federal government continues to be funded.
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