Trump claims tax reform bill as a 'historic victory'

Donald Trump's tax reform bill lowers individual and corporate tax rates but critics say it unjustly benefits the rich.

    Donald Trump has praised a tax reform bill passed by both houses of the US Congress as a "historic victory for the American people", as the contentious legislation represents the first major tax overhaul in over three decades.

    The president hailed the legislation, which was passed by the House of Representatives for a second and final time on Wednesday after hitting a procedural snag a day earlier, as "an incredible Christmas gift for hardworking Americans".

    "I said I wanted to have it done before Christmas; we got it done," Trump said during a cabinet meeting on Wednesday.

    Trump held a press conference alongside Republican members of the House and Senate on Wednesday afternoon to celebrate the bill's passing.

    "This is going to mean companies are going to be coming back. I campaigned on the fact that we're not going to lose our companies any more. They're going to stay in our country," Trump said from the lawn of the White House.

    "We have companies pouring back into our country and that means jobs."

    After hours of debate, the US Senate passed the tax overhaul motion in the early morning hours Wednesday, 51-48, with the votes falling along party lines.

    That followed an earlier vote in the House of Representatives, where Republicans also hold a majority, passed in a similar fashion.

    The tax overhaul will now go to the president's desk, where Trump will sign it into law.

    He has not yet specified when the bill's signing will take place.

    The deepest rewrite of the tax code in three decades provides dramatic tax breaks to US corporations, and families at all incomes levels will see their income tax drop starting next year, with the largest benefits going to the rich.

    Hogan Gidley, a White House spokesman, criticised Democrats for opposing the legislation and said they would pay a price at the ballot box during next year's midterm elections.

    "We put forth a bill that actually gives tax cuts to the middle class, about $2,000 on average per family, and no Democrat decides to vote for it? It's absolutely incredible," Gidley told Al Jazeera.

    WATCH: White House spokesman: 'No Democrats voted' for middle-class tax cut

    Last week, Trump said the tax plan - the first major change to the US tax code since 1986 - would fulfil a campaign promise to give middle-class Americans a substantial tax cut before the end of the year.

    The bill has been a major focus for Trump, who has been unable to pass significant legislation since he took office last January.

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    A typical family of four earning the median family income of $73,000 will receive a tax cut of $2,059, Republicans said when they unveiled the final version of the bill last Friday.

    Democrats, who were opposed to the legislation, said it unfairly rewards corporations and wealthy Americans and would add $1.5 trillion to the federal deficit over the next 10 years while raising taxes on some middle-class families, according to Reuters.

    Some Democratic legislators have called it a "tax scam", while the Democrat-leaning Huffington Post headlined with "The heist is here".

    But Trump said the bill's focus is on creating jobs and giving tax cuts to the country's middle class.

    "The heart of our bill is a tremendous amount of relief for the middle class, including a doubling of the child tax credit and a nearly doubling of the standard deduction. That's going to be tremendous for people," Trump said during the cabinet meeting.

    He said Americans would start seeing the results of those cuts in February.

    Trump also boasted about cutting "hundreds and hundreds" of regulations through the tax measure.

    "We have plenty of regulation. Regulation is not the worst thing. But overregulation is. We're stifling in our country," he said.

    Winners and losers

    Under the legislation, income tax rates will be reduced across all seven individual tax brackets.

    But the bill gives individual citizens and married couples that fall into the highest income bracket - earning $500,000 and up annually - the largest income tax cut, which will drop from 39.6 to 37 percent.

    The corporate tax rate will be lowered from 35 percent to 21 percent, effective January 1.

    The cuts are projected to add about $1.46 trillion to the deficit over the next decade, which is just shy of the $1.5 trillion the bill is allowed to cost.

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    According to the Tax Policy Center, an independent analysis centre run by the Urban Institute and the Brookings Institution, households would get an average tax cut of about 1.6 percent of after-tax income thanks to the bill, or about $1,200.

    However the bill will reduce taxes three times as much for business owners than for workers, the centre estimated.

    For example, individuals who make their salaries from wages would get an average cut of 1.5 percent of after-tax income, but "owners of pass-through businesses such as partnerships and sole proprietorships would get an average tax cut of 4.3 percent of their after-tax income".

    A pass-through business is not subjected to the corporate tax rate. Instead, business profits are passed on to the business owner, who reports that income on his or her individual income tax return and pays taxes on it that way.

    That means "a software engineer may pay less in taxes as a consultant than as an employee - even if she does exactly the same work at exactly the same pay".

    "Or, a partner in a real estate development firm might get a far bigger tax cut than a surgeon employed by a hospital, even though their income is the same. This violates a basic rule of good tax policy: that taxpayers with similar situations should be treated similarly," the centre said.

    But while corporations will see their taxes lowered indefinitely, tax breaks for individuals will only remain in place until the end of 2025.

    Other changes

    The bill boosts the Child Tax Credit from $1,000 to $2,000 for single filers and married couples. It will begin to phase out for families making $400,000 annually.

    The bill also eliminates what is known as the individual mandate penalty tax in the Affordable Care Act health plan, also known as Obamacare.

    The individual mandate imposes financial penalties on people who do not have health insurance, without a valid exemption.

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    According to a Congressional Budget Office report released last month, getting rid of the individual mandate would lower the federal budget deficit by $338bn.

    But insurance premiums would go up by about 10 percent while the number of people without health insurance would go from four million in 2019 to 13 million in 2027, the report found.

    The bill also eliminates what is known as the alternative minimum tax.

    This tax - which can apply to corporations and individuals - is designed "to capture more income tax from households that would otherwise claim large deductions and have less tax liability", according to a report by the Tax Foundation, a tax policy non-profit group.

    The House-Senate Conference Committee said getting rid of this tax would allow job creators to "focus on growing their business and hiring more workers, rather than on burdensome paperwork".

    Strong criticism

    Democrats have come out strongly against the legislation, but without the votes in either House of Congress, could not do much to stop it from passing.

    A UN rights expert also recently criticised Trump's plan for tax reform, saying it "stakes out America's bid to become the most unequal society in the world" and "will greatly increase" income inequality.

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    The bill "is essentially a bid to make the US the world champion of extreme inequality", Philip Alston, the UN special rapporteur on extreme poverty and rights, said in a preliminary report released last week.

    Alston said the bill will "shred crucial dimensions" of the US social safety net and gut social programmes.

    Children's Defense Fund, a nonprofit organisation working to reduce poverty among children, has previously called the proposed tax plan "unjust, expansive and immoral".

    A provision in the bill would also open up a key ecological area in the Arctic to oil and gas exploration, a move that has been condemned by environmental and indigenous rights groups, as well as Democratic legislators.

    "This legislation threatens irreversible ecological destruction of this pristine landscape in order to deliver tax breaks to billionaires," environmental group EarthJustice said in a petition against the tax reform plan.

    SOURCE: Al Jazeera News


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