US Senate sends GOP's US$1.5t tax cut to House for final vote

[WASHINGTON] Senate Republicans passed the most extensive rewrite of the US tax code in more than 30 years, a bill that delivers a deep, permanent tax cut for corporations and shorter-term relief for individuals.

The chamber's 51-48 party line vote shortly after 12.30am on Wednesday brought US President Donald Trump to the brink of his first major legislative victory. The bill - which has scored poorly in public opinion polls - will immediately become one of the biggest issues in the 2018 elections that will determine whether the GOP retains its majorities in Congress.

Before reaching Mr Trump's desk, the bill must return to the House for another vote on Wednesday morning after Senate Democrats invoked a technical budget rule to remove some minor provisions.

"Many of us in this body have been waiting for years for this opportunity, and millions of Americans outside of this body have been waiting even longer," said Senator Orrin Hatch, the Utah Republican who chairs the tax-writing Senate Finance Committee.

Vice-President Mike Pence presided over the Senate vote, which was interrupted repeatedly by protesters, some of whom chanted, "Kill the bill, don't kill us!"

The bill slashes the corporate tax rate to 21 per cent from 35 per cent, enhancing the US position against other industrialised economies, which have an average corporate rate of 22.5 per cent. It offers an array of temporary tax breaks for other types of businesses and for individuals - including rate cuts that will tend to favour the highest earners. Most middle-class workers will also get short-term relief, but independent analyses show the amounts aren't large.

The average tax cut for the bottom 80 per cent of earners would be about US$675 in 2018, according to an analysis by the Urban Brookings Tax Policy Center. The top one per cent of earners would get an average cut of about US$50,000 that year, and the top 0.1 per cent would get an average of US$190,000, according to the group's analysis.

The changes would reduce federal revenue by almost US$1.5 trillion over the coming decade - before accounting for any economic growth that might result, according to Congress's Joint Committee on Taxation, which analyses tax legislation. Earlier versions were forecast to increase deficits by roughly US$1 trillion even after any growth effects.

The bill now heads back to the House, which approved it earlier on Tuesday on a 227-203 vote. The do-over became necessary on Tuesday evening after Senate Democrats forced their GOP counterparts to make three relatively minor changes to the bill - including dropping a provision that had named it the "Tax Cuts and Jobs Act".0

That move was little more than a procedural hiccup; it also forced the removal of a provision that would have allowed parents to use 529 educational savings accounts to cover expenses of home-schooling their children. Another required change was related to an exemption from a new excise tax on private universities' endowments above a certain threshold.

The House will pass the bill again with ease, said Representative Kevin Brady, who chairs the tax-writing Ways and Means committee.

"The only thing better than voting on tax cuts once is voting on tax cuts twice," Mr Brady said with a smile.

Tuesday's vote - which came after a six-week sprint marked by marathon meetings, late-night votes and hasty rewrites of key provisions - marked a triumph for Senate Majority Leader Mitch McConnell, who in September had failed to secure another major GOP priority: repealing the 2010 Affordable Care Act that's known as Obamacare.

In ushering the tax bill to successful passage, Mr McConnell was able to revisit that failure. In one of the tax measure's most controversial provisions, GOP senators attached language that repeals a major piece of the healthcare legislation: the individual mandate that requires people to have insurance coverage.

"It's not a total replacement, but it takes the heart out of Obamacare," Mr McConnell said in an interview on Tuesday before the Senate vote.

GOP leaders say the Obamacare mandate's penalty - US$695 for individuals - falls disproportionately on lower- and middle-income people. Repealing it is estimated to generate roughly US$300 billion over 10 years, helping to keep the tax bill from creating even larger potential deficits. But at the same time, about 13 million people are expected to drop their insurance coverage over that decade, according to the Congressional Budget Office's estimate.

Some health economists say the change would lead to higher health-coverage premiums, perhaps cancelling out the effect of the individual tax cuts for many. Some GOP lawmakers, including Senator Susan Collins of Maine, are seeking legislation to help stabilise the situation, but the fate of those efforts remains unclear.

Mr McConnell said on Tuesday he would offer such provisions in a spending bill "later in the week".

Ms Collins, a moderate, also won concessions that expanded a deduction for medical expenses for two years and preserved a partial individual deduction for state and local taxes.

The so-called SALT deduction, which provides a tax break on state and local property taxes as well as income taxes or sales taxes, will be capped at US$10,000 - a change that will mostly hurt people who make relatively high incomes in high-tax states that tend to vote Democratic. GOP lawmakers in New York, New Jersey and California have objected to limiting the deduction, saying it might hurt them politically.

In the House, only 12 Republicans - all but one of them from those three states - voted against the measure.

Overall, the bill has failed to win broad popularity in public opinion polls. Despite Mr Trump's repeated attempts to sell it as a boon for the middle class, half the public thinks they'll pay higher taxes under the bill, according to a Monmouth University poll that was released on Monday. Democrats say they're eager to make the tax bill a major issue in next year's congressional elections.

"The bill provides crumbs and tax hikes for middle-class families in this country and a Christmas gift to major corporations and billionaire investors," Senate Minority Leader Chuck Schumer, a New York Democrat, said on Tuesday. "Republicans will rue the day they passed this bill and the American people will never let them forget it."

BLOOMBERG