Who are winners and losers of American tax bill?

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The US tax cuts took effect on January 1. The sweeping overhaul will reduce rates for corporations and individuals, and increase the fiscal deficit by 1.5 trillion US dollars over the next ten years.

The so-called Tax Cuts and Jobs Act will also repealing the Affordable Care Act’s individual mandate, effectively kicking 13 million people off their insurance.

“This will be a very huge loss for the US government, but on the other hand, Republican believed that this tax reform will pay back itself,” said Judy Hou, a partner in the international tax service at Ernst & Young. “How would that happen?"

Hou specified the idea of the Republicans, who said that although the tax rate will be reduced, the tax base will be broader. So with this tax reform, the US GDP will grow with more revenue generated to the federal government.

“But of course, there are a lot of debates about whether it will be really achieved,” Hou added.

Who are the biggest winners of the tax bill? The answer will be: Corporate America.

A massive corporate tax cut has been the centerpiece of the Republican tax plan from the beginning. The bill permanently cuts the corporate tax rate from 35 percent to 21 percent.

Also, American companies abroad will no longer have to pay corporate taxes on money they claim to have earned overseas. Corporate income brought back to the US will be taxed between eight and 15.5 percent, instead of the current 35 percent.

Individual taxpayers may benefit in the short term, as there are tax cuts across the board and increases in the standard deduction.

“There will be technical difficulties, especially in the tax reform process. But that’s not a sustaining problem,” said He Weiwen, a senior fellow at Center for China and Globalization.

From He’s perspective, one of the factors causing technical difficulties is that more self-support business owners could choose to pay corporate income instead of personal income, due to the lower corporate tax rate under the new rule.

But they may lose in the long run, because the tax cut for individuals will slowly decrease over time and end altogether in 2025. This is due to a Senate budget rule that restricts the cost of the tax bill to 1.5 trillion US dollars. Meanwhile, the Republicans decided to sunset nearly all the individual tax cuts to make the corporate tax cuts permanent.

Another big loser might be fiscal conservatism. The bill is expensive. It will cost 1.46 trillion US dollars over ten years or roughly one trillion US dollars when adjusted for economic growth, which is a substantial impact on the deficit.

Residents wait in line to pay taxes at the Fairfax County Government Center December 28, 2017 in Virginia, the US, December 28, 2017. /VCG Photo

The bill also changes the mortgage interest deduction, lowering the cap for newly issued loans to 750,000 US dollars from the current one million US dollars threshold. In that case, many people pre-paid their 2018 property taxes before the end of 2017 in an attempt to blunt the effects.