President Donald Trump won a tight victory last week in the Senate, which passed a tax reform proposal that seeks to lower the 35 percent corporate tax to 20 percent. Trump seeks to incentivize new investment in the economy. This plan marks the most important tax cut in decades, because the entire U.S. economy will be affected. However, the reform contains no budgetary cuts. When it comes to income tax for workers (people, as opposed to a humanized definition of corporation), there will be three tax levels of tax – 12 percent, 25 percent and 35 percent – depending on a person’s wages. Legislators did not touch homeowner deductions, although they suggested establishing a limit for such deductions. By drafting these tax reforms, the White House hopes to help corporations, giving them an incentive to invest within the United States. The 20 percent tax figure, however, might just be symbolic, since corporations almost never pay the full 35 percent tax.
The plan proposes that the first $12,000 earned by an individual, and the first $24,000 for a couple, be tax-free. It is assumed that this plan will be approved since Republicans hold a majority in both the House and the Senate.
In a 51-49 vote in the Senate, only one Republican senator, Bob Corker from Tennessee, voted against the plan. The plan has been criticized by Democrats and it could impact Puerto Rico, the Caribbean territory recently buffeted by Hurricane María. Congress has not yet indicated how the tax plan will affect U.S. territories.
According to critics, the new plan could turn into a double-edged sword. Although Senate Majority Leader Sen. Mitch McConnell of Kentucky called passage of the plan “a great day for the country,” Democrats disagree. Senate Minority Leader Chuck Schumer of New York expressed the Democrats’ disapproval, pointing to “a process and a product that no one can be proud of and everyone should be ashamed of.” The Democrats’ critique centers on the fact that the new legislation provides more benefits to large corporations at the expense of middle class income.
Other amendments were approved with the bill. Republican Sen. Ted Cruz of Texas introduced a $10,000 annual voucher-style fund for payment to private and religious K-12 schools. Republican Sen. Susan Collins of Maine proposed a $10,000 federal tax deduction based on state and local taxes for low income taxpayers. It would also allow them to deduct medical bills. Both these amendments were attached to the tax reform bill.