US President Donald Trump. Picture:  REUTERS/KEVIN LAMARQUE
US President Donald Trump. Picture: REUTERS/KEVIN LAMARQUE

Washington — The US Senate narrowly approved a tax overhaul on Saturday, moving Republicans and President Donald Trump a step closer to their goal of slashing taxes for businesses and the rich while offering everyday Americans a mixed bag of changes.

In what would be the largest change to US tax laws since the 1980s, Republicans want to add $1.4-trillion over 10 years to the $20-trillion national debt to finance changes they say would further boost an already growing economy.

Speaking to reporters as he left the White House for New York hours after the predawn vote, Trump praised the Senate for passing "tremendous tax reform" and said "people are going to be very, very happy".

US stock markets have rallied for months on hopes that Washington would provide tax cuts for corporations.

Celebrating their victory, Republican leaders predicted the tax cuts would encourage US firms to invest more and boost economic growth.

"We have an opportunity now to make America more competitive, to keep jobs from being shipped offshore and to provide substantial relief to the middle class," said Mitch McConnell, Republican leader in the Senate.

The Senate approved their bill in a 51-49 vote, with Democrats complaining that last-minute amendments to win over sceptical Republicans were poorly drafted. "The Republicans have managed to take a bad bill and make it worse," said the Senate’s Demo-cratic leader, Chuck Schumer.

"Under the cover of darkness and with the aid of haste, a flurry of last-minute changes will stuff even more money into the pockets of the wealthy and the biggest corporations."

No Democrats voted for the bill, but they were unable to block it as Republicans hold a 52-48 majority in the Senate.

Talks will begin, probably next week, between the Senate and the House of Representatives, which has approved its own version of the legislation, to reconcile their respective bills.

In a legislative battle that moved so fast a final draft of the bill was unavailable to the public until just hours before the vote, Democrats slammed the proposed tax cuts as a giveaway to businesses and the rich financed with taxpayer debt.

The framework for the Senate and house bills was developed in secret by six Republican congressional leaders and Trump advisers, with little input from the party’s rank-and-file and none from Democrats.

Six Republican senators, who wanted and got last-minute changes and whose votes had been in doubt, backed the bill.

Senator Bob Corker, one of few remaining Republican fiscal hawks who pledged early on to oppose any bill that expanded the federal deficit, was the lone Republican dissenter.

Numerous changes were made to the bill on Friday and in the early morning hours of Saturday. One was to make state and local property tax deductible up to $10,000, mirroring the House bill.

The Senate had previously proposed ending state and local tax deductibility.

"The tax reform measure that passed the Senate is negative overall for state and local government finances. Lower federal tax rates for businesses and individuals could result in a modest boost to hiring and consumption, positively affecting state and local revenues," said Nick Samuels, vice-president at Moody’s Investors Service.

"However, the change to the state and local tax deduction would reduce disposable income for many taxpayers, likely outweighing the positive effect of lower federal rates on consumption in many communities and states."

Another change would put a five-year limit on letting businesses immediately write off the full value of new capital investments. That would phase out over four years starting in year six, rather than be permanent as initially proposed.

Under the bill, the corporate tax rate would be slashed to 20% from 35%, while future foreign profits of US-based firms would be largely exempt. On the individual side, the top tax rate paid by the highest-income earners would be cut slightly.

The Tax Policy Center, a nonpartisan think-tank, analysed an earlier but similar version of the bill and found it would reduce taxes for all income groups in 2019 and 2025, with the largest average tax cuts going to the highest-income Americans.

Two Republican senators announced their support for the bill on Friday after winning more tax relief for noncorporate pass-through businesses. These include partnerships and other firms not organised as public corporations. The bill now features a 23% tax deduction for such business owners, up from the original 17.4%.

Reuters

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