Posted by on November 9, 2017 3:51 pm
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Categories: Business Economy Economy of the United States Efforts to repeal the Patient Protection and Affordable Care Act Finance Income taxes money Politics Predicted effects of the FairTax Presidency of Barack Obama republican party Senate Senate Finance Committee Social Issues Steven Mnuchin tax white house

Confirming reports from earlier this week that the Senate GOP tax plan would delay the corporate tax cut for (at least) one year, a move that would strip the proposed tax reform of its most potent benefit, moments ago the Wapo reported that in a few hours, Senate Republicans will propose delaying a cut in the corporate tax rate from 35 percent to 20 percent until 2019. Bloomberg confirmed the news, quoting Bill Cassidy who said in an interview that that Senate Finance Committee tax legislation proposal will include a one-year delay before cutting the corporate tax rate to 20%.

The compromise would be a major departure from President Trump’s insistence on immediate changes that he says “are necessary to spur the economy.” And while some Senate Republicans objected to the one year delay, they were overruled.

As Bloomberg adds, the Senate tax writers will also propose keeping number of individual income-tax brackets at seven in a departure from the House bill that condenses the number to four, Sen. Bill Cassidy tells reporters. Cassidy also says Senate proposal won’t keep top rate at 39.6%, though doesn’t state what new top individual rate would be

In an attempt to offset the delayed economic boost from excess corporate spending, the WaPo explains that to prevent companies from waiting until 2019 to invest, “Senate Republicans will propose to allow companies to immediately deduct all capital investments in 2018 to incentivize them to spend more money immediately, the people said.”

The reason for the delay is simple: there is not enough revenue. “The one-year delay would lower the cost of the tax cut bill by more than $100 billion, and negotiators are trying to preserve as much revenue as they can for other changes.” The revision could also delay decisions by companies to move back to the United States from overseas or have companies hold off on other decisions as they wait for the corporate rate to fall.

As we have explained previously, the Senate approach is different than House Republicans are taking as it is limited by practical considerations: while the House is advancing a bill that would lower the corporate tax rate in 2018, they are also having problems dealing with the total cost of their bill, which has ballooned beyond the $1.5 trillion price tag they were permitted under budget rules.

And while Treasury Secretary Steven Mnuchin told Bloomberg yesterday that the White House’s “strong preference” would be for the tax cut to go into effect next year, the White House is not expected to threaten blocking the bill over this change.

In other words, despite the various teasers how the 1 year delay is immaterial, the biggest boost to the economy from the Senate’s tax bill is about to be eliminated. The result was immediate, with stocks dumping and the VIX spiking.

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