The U.S. House of Representatives approved again on Wednesday, Dec. 20, a Republican-led tax plan that promises significant benefits to American corporations, their top executives and the part of the population that has money invested in the stock market.
The Senate approved the legislation in the wee hours of Wednesday on straight party lines. No Republican opposed it, and no Democrat supported it. During the first vote in the House on Tuesday, Dec. 19, 12 Republicans from high-tax states opposed the bill. The re-vote Wednesday took place because of a procedural snag detected by Senate rule-makers.
President Donald Trump is prepared to sign the bill at the earliest opportunity, giving his administration its first major legislative victory after almost 11 months in office.
The bill reduces the corporate tax rate to 21% from 35%. Industries expected to benefit from the bill include automakers, banks and oil and gas producers. Health care companies may suffer because the bill eliminates a mandate under the Affordable Care Act that Americans have to have health insurance or pay a penalty.
The bill will lower taxes for most Americans in 2018, according to the Tax Policy Center. Taxpayers earning less than $25,000 would receive an average tax cut of $60, the center found. Those earning between $49,000 and $86,000 would get an average cut of about $900; those earning between $308,000 and $733,000 would receive an average cut of $13,500; and those earning more than $733,000 would receive an average cut of $51,000.
The measure gained unanimous Republican support even though the tax cuts are going to cost the Treasury about $1.5 trillion, all of which has to be borrowed, thereby increasing the nation's $20 trillion debt. Though Republicans including Sen. Bob Corker of Tennessee and Rand Paul of Kentucky have said in the past that they would oppose bills that boosted the U.S. debt, they voted for the tax legislation.
The bill is expected to widen the gap between the wealthiest Americans and the rest of the country, including $80 billion in tax cuts for the small fraction of heirs subject to the estate tax. To be sure, the measure will also save about $314 billion by repealing the Obamacare mandate, meaning about 13 million mainly young or poor people will likely go without health insurance.
Wealthy business owners, including Trump and Corker, stand to gain from a provision in the bill that creates a 20% business income deduction, with some limits, for sole proprietors and owners in partnerships and other non-corporate enterprises known as pass-through businesses.
The measure is also expected to generate plenty of work for accountants and lawyers by adding a variety of provisions that will benefit people that have sophisticated tax-planning strategies.
Not quite one-third of families in the bottom 50% of earners own stocks, according to the Federal Reserve. On the other hand, nearly 94% of the top income group owned stocks in 2016.
People in high property-tax states will likely suffer from the bill, which caps deductions for state and local taxes and property taxes at $10,000. That deduction was worth an average of $24,900 to Manhattan residents and $17,000 to those living in Marin County, Calif., across the bay from San Francisco, according to 2014 IRS data compiled by the Tax Foundation and reported by Politico. It also eliminates tax breaks for such things as refinancing municipal bonds, building charter schools, subsidizing bike commutes and rehabilitating old buildings.
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