The US Senate has passed the long-promised Republican tax bill, which is the most extensive rewrite of the nation’s tax code in three decades.
It marks a major achievement for the Trump administration, with Republicans having been unable to deliver any major legislative achievements since Donald Trump became president in January.
But why has it taken so long? Here’s an outline of what these tax cuts mean for Mr Trump and the US economy.
Trump’s been pushing for tax cuts for a while
Republicans in the US House of Representatives unveiled their 440-page tax proposal on November 2, and it was passed shortly afterwards.
The next battle was in the Senate, where Republicans struggled to win over their own party members to support the bill, which went through a process known as budget reconciliation.
But on Friday, the passing of the bill looked likely after Senate Majority Leader Mitch McConnell triumphantly told reporters, “we have the votes”.
Among the proposals that have been flagged are plans to slash the corporate tax rate from 35 per cent to 20 per cent, as well as giving high-income earners personal income tax cuts.
It ended up being a bit of a mad rush
With all the late amendments that were made to the tax cut bill, it ended up being a mad rush to get the bill to the vote on Friday afternoon (local time).
Some politicians even complained that there were “handwritten pages” in the bill.
There were a few reasons that had been holding up a vote on the bill’s passage.
First, and perhaps one of the more controversial reasons, is that it’s pretty costly.
The Republicans have approved the bill adding up to $US1.5 trillion to America’s debt over the next 10 years. But some took exception to the huge cost, particularly members of the Republican party.
That brings us to the second reason. While the plan passed quickly in the House, the Republicans only had a narrow majority in the Senate (52-48), and were faced with some of their own party members threatening to cross the floor.
Time had been reporting that up to four Republicans were considering opposing the plan, including senators Jeff Flake and James Lankford, who had been concerned about the impact the bill would have on the deficit, healthcare and the distribution of tax benefits.
Three of those senators ended up voting in favour of the bill.
Senator Bob Corker remained the only hold out, saying he was unable to support the legislation after his bid to include future tax increases to offset the deficit was rejected.
So, it’s a pretty big deal
Expectations of lower taxes have helped drive the S&P 500 up more than 20 per cent since the 2016 presidential election, with investors counting on lower tax rates to boost company earnings.
UBS America’s chief investment officer Mike Ryan said last week that “prior to the election there was no discussion about tax reform”, but that has changed since Mr Trump came along.
A failure to pass the cuts would have heightened concerns among businesses and investors about the Trump administration’s ability to pass legislation.
That would have seen some of the steam taken of the market, and perhaps some uncertainty start to sink in.
The bill has also been seen by Republicans as crucial to their hopes of retaining control of Congress in the November 2018 elections.
And a major victory for Trump
One of Mr Trump’s key campaign promises was cuts to corporate taxes.
Mr Trump has previously called the bill an “important step” toward tax relief for Americans, adding that “there is much work left to do”.
And after a bad run lately — Republicans having been unable to deliver any major legislative achievements since Mr Trump became president in January despite controlling the White House and both chambers of Congress — these tax cuts represent a huge achievement.
Despite facing questions from members of his own party over his competence, the passing of what has been described as the “largest overhaul to the US tax system since the 1980s” shows that Republicans are still sticking by their leader.
It is also represents another victory for Mr Trump, in the repeal of the individual mandate, the ObamaCare requirement for Americans to have health care.
Mr Trump has long pushed for the repeal of Obamacare, having signed an executive order in October to make it easier for Americans to buy bare-bones health insurance plans, and critically, for small business employers to buy cheaper plans for their employees.
Who actually benefits the most?
It’s hard to say, as some of the details of the plan still have not been released.
Economists, tax experts and analysts have been split about how it will generate economic expansion and who will most benefit.
Republicans argue their plan will benefit America’s middle class and save $US1,182 in taxes for a family of four earning $US59,000.
They also say it will lead to investment and job creation.
But Democrats say, the “lion’s share of its benefits to those at the very top, the already wealthy and the already powerful“.
Independent analysis by the Joint Committee on Taxation found 61.7 per cent of Americans would get a tax cut of $US100 or more in 2019 if the TCJA passes, while 30.2 per cent would see a change of less than $US100 to their tax bill.
Another concern has been features like phase-outs of some benefits, which suggest individual and family taxes could grow in the future.
That’s because one trade-off for the tax reductions is the elimination of personal and family tax breaks, such as their ability to write off state and local income taxes.
Many Republicans had also expressed their reservations about plans to permanently reduce the corporate tax rate but allow household and individual tax cuts to expire.
US media has also reported that the Republican tax bill would force $25 billion in immediate cuts to Medicare, according to the Congressional Budget Office, because of a pay-as-you-go law that requires Congress tax cuts and certain spending increases to be offset.
The cuts to Medicare are expected to put the health coverage of millions of Americans at risk.
And what’s with the Medicare mandate repeal provision?
The Senate tax-cut plan included a repeal of an Obamacare rule that requires Americans to have health insurance coverage or pay a penalty.
Mr Trump said in a tweet last month that the individual mandate repeal should be added to the plan, which is reportedly expected to save billions in government spending over the next decade.
It will also offset some of the costs of the tax cuts because the repeal would lead to less people taking up the Obamacare individual health plans and enrolling in the government program that provides health coverage to the poor, Medicaid.
So what’s next?
There will probably be some work involved in finalising the details of the plan, which according to some reports has hand-written pages in it.
It will be now be up to both the House of Representatives and the Senate to reconcile the two different plans.
The House, which has already approved its own bill, is currently expected largely to defer to the Senate measure.
Once reconciled, the single plan would then be brought to the White House, where Mr Trump is expected to sign it into law before the end of the year.