US Senate votes to slash corporate tax rate

The US Senate has voted to slash the corporate tax rate from 35% to 20%.

The vote in the 100-seat chamber was on largely partisan lines, with 48 Democrats and one Republican voting against it, and 51 Republicans in favour.

Its sweeping tax reform bill must now be reconciled with a version passed by the House of Representatives.

Talks will start Monday. Republicans in the upper and lower chambers expect to reach a consensus and send legislation for President Trump to sign before Chrismas.

The Senate and House bills are in line on the headline measure to slash the corporate tax rate, although the Senate wants to delay it a year until 2026.

But in other areas, there are differences to thrash out (see table below).

The Senate version of the legislation times out individual tax cuts after 2025.

That provision was a sop to deficit hawks.

The neutral Congressional Budget Office earlier said that the tax changes would add $US1.4 trillion to the US deficit (which already stands at around $US20 trillion over 10 years), before allowing for economic growth. Republicans say the stimulus of lower taxes will mean the bill will pay for itself (even if their faith doesn't quite extend to making individual tax cuts permanent).

The headline corporate tax break is good news for big business, but the two bills are not unadulterated good news. A measure for domestic manufacturers that equates to a 3% tax break is being eliminated, and there will be a 10% (House) or 14% (Senate) levy on an estimated $US2 trillion in profits held offshore, whether they are repatriated or not.

And the picture is less clear still for small businesses, families and individuals.

The top individual tax rate in the US is currently 39.6%. The House bill leaves that untouched, the Senate trims it slightly to 38.5%.

Lower down the food chain, a complex matrix of give-and-take has left a lot of room for Republicans and Democrats to argue over how many middle or working class families will be better off, or not.

Both the Senate and House bills eliminate income tax deductions and cap property tax deductions for state and local taxes, which can be significant. 

Another example: medical expense deductions are eliminated in the House version but temporarily expanded on the Senate version.

The 435-member House, where Republicans have a big majority, will probably have to be the chamber to compromise. Many of the upper chamber version's key measures were made to gain the votes of key Senators in a last-minute scramble for a one-vote majority. 

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