US Senate takes first vote towards tax reform

The US Senate will vote Thursday to begin major fiscal reforms based on a sharp drop in taxes sought by Republicans and President Donald Trump, who is trying to salvage his troubled legislative agenda.

After failing to repeal former president Barack Obama's health care reforms, adoption of tax cuts before year's end has become the top priority for Republicans who control the Senate.

Tax reform is also a signature pledge of Trump, most of whose other legislative priorities have stalled.

He took office in January arguing that tax reform will further boost the economy and benefit ordinary Americans.

"Republicans are going for the big Budget approval today, first step toward massive tax cuts," Trump tweeted on Thursday morning.

"I think we have the votes, but who knows?"

The politically explosive reforms are being addressed in several steps, beginning with Thursday's vote on a resolution to establish the 2018 budget framework.

This measure will simplify the later voting procedure on the tax reforms by lowering the threshold for Senate approval. Senators will need only a majority of 51 votes to adopt the budget, instead of 60 generally required in the 100-member chamber.

With Senate Republicans holding 52 of 100 Senate seats, that would mean they no longer need Democratic support, unless there are Republican defections.

The basis of the reforms, outlined last month, is a drop in the corporate tax rate from 35 to 20 percent, a reduction in income tax for the majority of income groups, and the elimination of loopholes and deductions to fix a tax code which Trump calls a "relic."

The top one percent of earners will see their after-tax incomes rise 8.5 percent in 2018, while the 95 percent lower down the scale will see a gain of 0.5-1.2 percent, according to the Tax Policy Center, a Brookings Institution-Urban Institute joint venture.

-- 'An enormous chasm' --

The center says the reforms will cost $2.4 trillion in lost federal revenues during their first decade, which raises questions about how they will be financed.

Republican supporters of the changes say stronger economic growth will compensate for lower fiscal receipts.

Democrats have strongly denounced the tax cuts as a giveaway to the rich.

"There is an enormous chasm between the rhetoric and the reality of the Trump tax plan," said Senate Finance Committee Ranking Member Ron Wyden, the senior Democrat.

Fiscal conservatives worry a tax cut will add to the national debt, but Trump has called for Republican unity after some in the party balked at supporting a bill that would dismantle much of Obamacare.

Repealing Obama's health reforms was one of Trump's most consistent campaign promises.

Trump's Treasury Secretary Steven Mnuchin says failure on tax reform could spark a crash in US stock markets which have repeatedly hit records in recent weeks.

"To the extent we get the tax deal done, the stock market will go up higher," Mnuchin told Politico on Wednesday.

"But there's no question in my mind that if we don't get it done you're going to see a reversal of a significant amount of these gains."

Source: AFP