Voted on in December, the Tax Cuts and Jobs Act introduced by President Donald Trump, was scheduled to officially take effect on the first of January 2018. There has been much controversy over the winners and losers of the new tax bill, and whether or not it will bode well for Republicans in the future in terms of voter support. The vote took place on December 5th, and was approved with 51 to 49 votes, with voting falling strictly along partisan lines, excluding one Republican Senator who voted nay. The bill’s primary provisions include a reduction of the corporate tax bill from 35% to 21%, a last-minute change from the original 20% proposed to appease Democrats. Additionally, taxes on assets will fall from 35% to 15.5% for liquid assets and 8% for non-liquid assets. While a seemingly severe cut, this tax applies to overseas earnings as well, not just those repatriated, as the previous tax rate dictated, which resulted in companies stockpiling those earnings abroad to avoid the tax altogether. This change endeavors to keep corporate assets within the country, reducing capital flight and boosting reinvestment domestically. Individuals benefit from a doubled standard reduction rate, however this is offset but the repeal of many personal exemptions and a limitation placed on previously unlimited state and local tax reductions at 10,000$, as well as a cap on mortgage-interest deductions. The threshold for the individual alternative minimum tax rate has also been raised significantly. Of significant impact, the bill removes the individual mandate for health insurance, this crippling a key pillar of the Affordable Care Act.
Despite being a Republican reform, several provisions were made to appease those within the party, as certain effects of the new bill have caused many to be skeptical of its implementation. As a result of significant tax cuts, the final bill is estimated to increase the deficit by over $1.4 trillion. This impact portrays a shift in the Republican narrative, whose message throughout the majority of the Obama administration, especially during the 2007-2008 financial crisis, was to limit government spending in order to prevent further U.S. debt. Obama’s proposed $447 billion bill to stabilize or create millions of jobs fell prey to this argument of debt panic, and House Speaker John Boehner famously stated in 2011, in justifying the cuts of certain social welfare programs, “We’re broke”.
This shift in position has left many Republicans unsure of the new bill, and thus concessions were made to appease those on the fence, such as a reduction in the threshold for medical expense deductions and an increase in the Child Tax Credit.
Republican Senator Bob Corke though votes against the bill on December 5th, claiming it could “deepen the debt burden for future generations.”
However, last minute revisions as part of the reconciliation process between the House and the Senate’s different bills added a 20% deduction for business owners pass-through income, which was originally designed to exclude businesses with few employees. This change means these businesses, such as real estate firms, can now claim these deductions, and may shed light on Corker’s change of heart towards the bill as he has stakes in several real estate partnerships. This controversy over the Senators flip flop has been since dubbed the ‘Corker kickback’.
The narrow margin of votes needed to pass the bills and the flurry of debate that has followed its initiation is emblematic of the deep divisions, not just in Congress, but in the country as well. The success or failure of this bill will be difficult to measure, however the people’s support will prove key to whether it stands the test of time, or is destined to be repealed at the first opportunity.