The White House and Republican leaders on Capitol Hill finalize the version of a historic tax reform of which many details are still unknown. US President Donald Trump last week accused via his Twitter account that lawmakers should do everything possible to equalize China’s corporate tax rate, which has a 15% figure.
However, in the back of the negotiations, both members of the Administration and Treasury Secretary Steven Mnuchin, like many Republican congressmen, consider that the goal is not materially sustainable. Now the sights are set on September 25, when more information will be released on the project in which Republican leaders and White House work. “We now think Congress and the administration will target a 25 percent corporate tax rate, a 10 percentage point reduction to the top statutory rate,” said Michael Pugliese, an analyst at Wells Fargo Securities. This will add an incentive to the removal of benefits but, contrary to rumors to date, this will be temporary as seen in 2005.
Wells Fargo Securities estimates that the net tax impact of tax cuts for both businesses and individuals will reach $1.6 trillion over the next ten years. The Trump Administration’s target exceed those reached by President Ronald Reagan’s tax reform in 1986, but given the economic and political context, it is difficult for it to achieve a neutral effect for the federal reserves as occurred more than three decades ago. The current situation suggests that the final outcome of the negotiations is more likely to end in a temporary tax cut, such as that put in place by Bush, rather than the touching the true tax code.
But what can be done so that either possibility becomes a reality? The first step requires both the House of Representatives and the Senate to approve a budget resolution setting out funding levels for fiscal year 2018, which will likely be used in the December budget bill, in addition to issuing instructions to implement tax cuts. The approval of this resolution, which basically is an agreement between both Houses and requires the title of the president, is complicated, although the Republicans control the Congress and the Senate.
The Republican Liberty Caucus (RLC), an important group of financially conservative Republican lawmakers, and even some more moderate members, are currently seeking to influence the proposed tax cut or reform before accepting a budget resolution.