Businesses cheer tax cuts but not all Americans are happy

European and Asian markets have offered a muted reception to the passage of US tax cuts as benefits to company bottom lines were already baked into stock prices, while bonds were spooked by the blowout in government debt needed to fund the giveaway.
The US Republican tax overhaul will allow Apple to bring back its $252.3 billion foreign cash pile without a major tax hit, but Apple could pay more on profits from patents held abroad.
Crediting the tax cuts, Boeing pledged $300 million for employee training, improved workplace infrastructure and corporate giving.
US President Donald Trump speaking at an event marking the passage of the Republican tax Bill at the White House, in Washington, on Wednesday. This marked the first major legislative win for Mr Trump. PHOTO: NYTIMES
Crediting the tax cuts, Boeing pledged $300 million for employee training, improved workplace infrastructure and corporate giving.
Crediting the tax cuts, Boeing pledged $300 million for employee training, improved workplace infrastructure and corporate giving.PHOTO: REUTERS

Poll shows 63% of Americans believe tax Bill is designed to help corporations and the rich

The biggest overhaul of America's tax code in 30 years was approved by the House of Representatives by a 224-201 vote on Wednesday, in the first major legislative win for US President Donald Trump.

"We are making America great again," Mr Trump told Republican lawmakers at a White House celebration, citing his campaign slogan. "Ultimately what does it mean? It means jobs, jobs, jobs, jobs."

Businesses yesterday welcomed the passage of the US$1.5 trillion (S$2 trillion) tax Bill, which will slash corporate taxes and likely spur a quick growth dividend, giving a boost for President Trump and the Republican Party.

As part of an effort to defy criticism that the tax cuts benefit shareholders more than workers, AT&T lauded the Bill and said its 200,000 United States workers will get a special $1,000 bonus to celebrate.

Boeing pledged $300 million for employee training, improved workplace infrastructure and corporate giving, crediting the cuts.

Republican senators and congressmen will be able to tell their constituents, when they go home for Christmas, that the landmark piece of legislation will put more money into the pockets of the middle class - at least temporarily.

But not all of America was quite as enthused.

Democrats called it a giveaway to the rich that will widen the income gap and add to the national debt of US$20 trillion. Said House Democratic leader Nancy Pelosi: "Today the Republicans take their victory lap for successfully pillaging the American middle class to benefit the powerful and the privileged."

Dr H.W. Brands, professor of history at the University of Texas in Austin, told The Straits Times: "The Republicans will benefit politically from having achieved their stated goal of tax reform." But he added: "The economic effects of the new law itself are far less certain. There might be a bounce in the stock market. But as to stimulating broader growth, that is less likely."

The public is cynical. Under the Bill, tax cuts for the middle class are temporary but for corporations, they are permanent. A new poll from NBC News and The Wall Street Journal shows that 63 per cent believe the tax cut is designed to help corporations and the rich.

Many analysts agree.

"The tax Bill does make an attempt to help people at the lower end," Ms Maya MacGuineas, president of the bipartisan non-profit Committee for a Responsible Federal Budget, said in a phone interview. "But tax cuts will give much greater benefits to the well-off because they pay more in taxes, and also because corporate tax reforms will benefit the economy in a way that's more likely to go to capital owners, who are the wealthy."

The non-partisan Tax Policy Centre think-tank estimated middle-income households would see an average tax cut of $900 next year, while the wealthiest 1 per cent would see an average cut of $51,000.

"It is likely to help grow the economy, and it is likely to succeed in keeping more corporations from going overseas and help our competitiveness," Ms MacGuineas added. "But it is highly unlikely to create enough growth that the numbers come in as high as advocates say it will. Debt will be higher. It will be a short-term jolt to growth but it won't last, and it will be bad for debt over the medium term."

The debt, analysts say, is the untold half of the story. "They talk about this being a generational reform but the bill is going to the next generation," Ms MacGuineas said.

The Republicans needed a win to help keep their base from walking away, Republican strategist and commentator Evan Siegfried told The Straits Times. The middle class would be thrilled with the cuts. But the narrative that the cuts favour the wealthy has taken hold, he said.

"There are going to be people who are furious that tax cuts for the corporations are permanent and for the people temporary," he said. "And it will further anger an already angry Democratic base that is organising itself.

Mr Trump plans to sign the tax Bill on Jan 3 to ensure automatic spending cuts to Medicare and other programmes do not take effect.

Most families will not feel the full impact till they file next year's taxes in early 2019.

Democrats have also promised to make Republicans pay in next year's mid-term elections, when all 435 House seats and 34 of the 100 Senate seats will be up for grabs.

A version of this article appeared in the print edition of The Straits Times on December 22, 2017, with the headline 'Businesses cheer tax cuts but not all Americans are happy'. Print Edition | Subscribe