The United States Senate has successfully voted in a new tax reform package, the most significant of its kind since 1986. Republican representatives voted in the tax reforms with 51 – 49 in favor of the proposed tax restructuring. A single Republican voted against the proposal, along with all of the Democratic representatives.
The vote marks an important victory for the Republicans in the Senate, and for President Donald Trump
Tax Cuts to the Middle Class, Wealthy, and Corporate America
Democrats claim that the new proposals will hurt low and middle income earners, at least in the long term. Republicans claim that they will benefit people across the income scale. The most significant cuts are being provided to income groups from $30k – $40k, $40k-$50k, and $500k -$1M. The least significant cuts will be for earners of less than $10k per year, with cuts of around 5.6%, whereas earners of $500k to $1M will receive a tax cut of 9.7%.
Tax reform was a significant aspect of President Trump’s election campaign, where he promised to make the country more competitive for businesses. Under the reforms, corporate taxes will drop from 35% to 20%, a significant amount which could attract investment into the United States. Trump has said that jobs will “start pouring into our country, as companies start competing for American labor and as wages start going up at levels you haven’t seen in many years.” Trump said that the “biggest winners will be the everyday American workers.”
Tax Reforms: Did America Need a Change in Tax Structure?
There’s no doubt that the proposed reforms will create controversy. Both sides of the political spectrum have their own interpretation of how tax should be managed, however, it is fair to say that tax does need to be simpler in the United States. With no significant changes since 1986, a number of amendments and new laws have taken tax law from 26,000 pages of legislation, up to 70,000 pages. Many would argue that there are too many earning brackets within the structure, and even the latest reforms won’t address that issue. Complexity not only makes taxation harder to understand for the average working individual or family, but it also makes it costlier for the IRS to manage.
The latest tax reforms will now be presented as a single bill (including reforms that were voted by the House of Representatives on November 16), which President Trump hopes to sign into legislation before the end of 2017. Lawmakers will need to reconcile some key differences between both proposals before consolidating the reforms into a single bill.
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