U.S Senate Passes Overhaul of U.S Tax Code

written on behalf of Feigenbaum Law

In a pre-dawn vote 51-49 vote that took place on December 2, the U.S. Senate approved a massive tax overhaul in what is the biggest change to American tax laws in more than 30 years. The new reforms bring the Trump administration closer to its election promises of decreasing corporate taxes and easing tax burdens on the wealthy.

President Trump addressed reporters shortly after the Senate vote, praising the body for passing “tremendous tax reform” and stated that “people are going to very, very happy.”

Objections from Democrats

Legislative discussions took place so quickly that a final draft of the bill, almost 500-pages long and some of it handwritten, was not provided to lawmakers until hours before the vote.

Democrats raised objections about amendments added at the 11^th hour to appease skeptical Republicans, calling these last-minute additions “poorly drafted” and “vulnerable to being gamed later”. Democrats also criticized the cuts, calling them a “give-away to businesses and the rich with billions of dollars in taxpayer debt”.

Senate Democratic Leader Chuck Schumer stated:

The Republicans have managed to take a bad bill and make it worse…[u]nder 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.

While not a single Democrat voted in favour of the bill, the party was unable to block it due to the Republicans Senate majority.

In reference to the handwritten additions, Senator Dick Durbin stated:

I defy any member of the Senate to stand here, take an oath that they have read this and understand what in the world it means to businesses and families and individuals.

Objections from Republicans

The sole objection from the Republicans came from Senator Bob Cooke, known to have a strong focus on keeping government budgets under control and who had pledged early on that he would oppose any bill that expanded the federal budget.

Corker, who is not running for re-election, stated:

I am not able to cast aside my fiscal concerns and vote for legislation that … could deepen the debt burden on future generations.

Key Changes

Some of the major changes that will be brought in by the reforms are:

• Making state and local property taxes deductible up to $10,000 (this mirrors the House bill, and is different than the Senate’s original proposal of entirely ending state and local tax deductibility);
• The alternative minimum tax (AMT) for both individuals and corporations will not be fully repealed, but adjusted with the corporate AMT maintained as is;
• A five-year limit on letting business write off the full value of new capital investments (this would be phased out over four years, after year six);
• The corporate tax rate will be permanently slashed to 20%;
• The personal tax rate paid by the highest-income earners would be cut slightly;

Predictions for Going Forward

Republicans are hoping that the tax cuts will encourage American companies to increase investments and boost economic growth, and have stated that the $1.4 trillion in tax cuts will in effect pay for themselves through this growth.

Mitch McConnell, the Republican senate leader told Reuters:

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.

Negotiations between the Senate and the House are expected to begin next week, to reconcile the Senate’s bill and the House’s own version of the legislation which was previously approved. President Trump wants the negotiations to finish before the end of the year. The Republican’s view the finalizing of tax reforms as critical to their success in next year’s mid-term elections, at which point they will have to defend their majority in Congress.

We will continue to follow developments with respect to U.S. tax reforms, and will provide updates as they become available. In the meantime, if you have questions about personal or corporate tax planning, and how it may be affected by these potential changes, contact Feigenbaum Law. We offer customized tax and financial planning solutions to clients in the U.S., Canada, and around the globe. Contact us online or at (416) 777-8433 or toll-free at (877) 275-4792 to learn about how we can help with cross-border tax planning.