Wealthy individuals and businesses can direct their underlings to ice the Dom Perignon and fuel their private jets in celebration of the US Senate's expected passage of the Republican tax bill on Wednesday.
It would have happened Tuesday but for a procedural problem that required two provisions to be removed from the bill. The draft law was given the green light in the House of Representatives, and with Senate approval, the tax plan is almost certain to be signed into law by President Trump, barring some distracting Twitter feud.
The tech industry in particular has reason to smile – unlike, say, disaster victims, who will no longer benefit from a federal income tax deduction for losses arising floods, wildfires, and other natural disasters that haven't been recognized as federal disasters by the president.
The Urban-Brookings Tax Policy Center (TPC), a policy think tank, had this to say about the plan:
Compared to current law, taxes would fall for all income groups on average in 2018, increasing overall average after-tax income by 2.2 percent. In general, tax cuts as a percentage of after-tax income would be larger for higher-income groups, with the largest cuts as a share of income going to taxpayers in the 95th to 99th percentiles of the income distribution."
Individuals – particularly the super-rich – can expect lower taxes until the end of 2025, when the cuts expire; for businesses, however, the cuts are permanent.
Business owners will benefit more than workers. TPC says people who earn income through wages can expect a tax cut of about 1.5 per cent, on average, translating to about $1,200. Those who earn income from pass-through businesses, such as partnerships, can expect a tax cut of about 4.3 per cent, or $4,300 on average.
The tax bill lets pass-through businesses deduct 20 per cent of their income, through 2025, with some qualifying conditions for service businesses.
Under the new rules, the top corporate tax rate will decline from 35 per cent to 21 per cent, and multinationals earning income abroad will be able to repatriate the funds at rates ranging from eight per cent for reinvested foreign earnings to 15.5 per cent for cash and cash-equivalent profits.
For businesses with boatloads of cash overseas, such as Apple, Microsoft, Cisco, and Google-parent Alphabet, that's a substantial potential windfall.
Perhaps unsurprisingly, the tech industry appreciates the effort.
"The final tax reform bill is strong in the key areas that encourage innovation and entrepreneurship and create jobs in America," said Linda Moore, president and CEO of TechNet, a trade group, in a statement on Tuesday. "Lowering the corporate tax rate, transitioning to a territorial tax system, allowing companies to reinvest their overseas profits here at home, and safeguarding the R&D tax credit are important drivers of economic growth."
The final version of the GOP bill also dispenses with the corporate alternative minimum tax, which would have made it harder for companies to pay less than the 21 per cent rate.
Businesses will be able deduct more expenses through bonus depreciation rates. This will allow investments in infrastructure and manufacturing, for example, to be entirely rather than partially written off, until 2023 for most industries.
The Tax Foundation, a tax policy non-profit, characterizes the plan as a boon for the economy. "Our model results indicate that the plan would be pro-growth, boosting long-run GDP 1.7 per cent and increasing the domestic capital stock by 4.8 per cent," the group said on Monday. "Wages, long stagnant, would increase 1.5 per cent, while the reform would produce 339,000 jobs."
Greater economic benefits are expected for President Trump, whose real estate holdings benefit from the pass-through provision, a number of Senators, including as Bob Corker (R-TN), and their families and friends.
Because someone's got to put America first. ®