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Fast Comment USUS tax overhaul now a done deal

  1. Passing of tax reform no surprise – moderate additional economic boost
  2. Deep, permanent tax cut for corporations and shorter-term relief for individuals
  3. The House needs to vote once more – will pass with ease
Passing of tax reform no surprise – moderate additional economic boost
Senate Republicans passed the most extensive rewrite of the US tax code in more than 30 years, a bill that delivers a deep, permanent tax cut for corporations and shorter-term relief for individuals. The Senate’s 51-48 party line vote brought President Donald Trump to the brink of his first major legislative victory. The bill, which has scored poorly in public opinion polls, promises to become one of the biggest issues in the 2018 mid-term elections that will determine whether the GOP retains its majorities in Congress. Our forecast is that the tax reform will boost growth in 2018 by a couple of tenths of a percentage point. However, the overall economic boost from the tax reform is greater, as households and companies' consumers have already acted on the expectations of a tax reform.
A broad description of the tax reform
The bill slashes the corporate tax rate to 21 percent from 35 percent, enhancing the US position against other industrialised economies, which have an average corporate rate of 22.5 percent. It offers an array of temporary tax breaks for other types of businesses and for individuals - including rate cuts that will tend to favour the highest earners. Most middle-class workers will also get short-term relief, but independent analyses show the amounts are not large. Moreover, the bill repeals a major piece of the health-care legislation: the individual mandate that requires people to have insurance coverage.
The House needs to vote once more – will pass with ease
The bill now heads back to the House, which approved it earlier on Tuesday with a 227-203 vote. The do-over became necessary on Tuesday evening after Senate Democrats forced their Republican counterparts to make three relatively minor changes to the bill. Our view is that the House will pass the bill again with ease, making it possible for President Donald Trump to sign the tax reform into law before the end of the year.

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