President Trump is preparing to meet with lawmakers ahead of the House vote for his tax reform later this afternoon. The Tradefair team brings you the latest news from the US...
“I want nothing more than to vote for a tax plan that unleashes our country’s full economic potential, but not if it’s paid for by my constituents.”
- Dan Donovan, New York Republican.
After 11 months in the White House, it's likely that Donald Trump is about to win his first major legislative action as his tax reform bill heads for a House vote.
The President is expected to travel to Capitol Hill today to talk to lawmakers from his Republican party, with the House Republicans voting on the bill later this afternoon.
Many people are confident that the changes will be passed without much issue. Former House GOP Majority Leader Eric Cantor estimated that there was "a much greater than 50% chance that tax reform will happen".
Speaking at the Abu Dhabi International Exhibition Petroleum Conference (ADIPEC), Cantor said that although America has the largest economy in the world, it is still struggling to deal with a "very unconventional" and "disruptive" leader.
An unconventional President?
Trump's unconventionalism doesn't seem to have knocked the confidence of Republicans, who remain convinced that the vote will fall in favour of the President. However, the bill remains controversial.
The reforms, which would be the biggest overhaul of the US tax system for decades, have remained fairly unknown, with Trump largely steering away from specifying what changes will actually be implemented.
Changes that have been announced have received a mixed reaction, especially from Trump's opposition. With plans to reduce corporation tax from 35% to 20% and to abolish estate tax, there have been concerns that the amends only benefit America's super wealthy and big corporations.
The estate tax in particular is set to only benefit a very small proportion of Americans, including Trump's family and his in-laws, the Kushners.
It's estimated that the reform would save $1.5 trillion in tax, but many are worried that this will do little to ease the burden on American families.
It's unlikely to be an out-and-out victory for the President even if the tax reform is passed by the House, with a handful of Republicans preparing to vote against it.
"I want nothing more than to vote for a tax plan that unleashes our country's full economic potential, but not if it's paid for by my constituents," said New York Republican Dan Donovan.
With the 2018 mid-term elections on the minds of many senators, Republicans may take some persuading to back a bill that is unlikely to benefit the vast majority of their community.
However, even US businesses, who are expected to benefit from Trump's reform, are not all behind the overhaul, as not all industries stand to prosper with the changes.
Are small businesses being left behind?
The National Federation of Independent Business (NFIB) has publicly said it's unable to back the current proposal.
NFIB President Juanita Duggan said: "This bill leaves too many small businesses behind... We believe that tax reform should provide substantial relief to all small businesses, so they can reinvest their money, grow, and create jobs."
Share prices for those companies expected to be hardest hit by the amendments took a sharp hit after the reforms were announced. Vestas Wind Systems, the world's leading turbine manufacturer, and Tesla both suffered considerable losses on the stock market after the bill was announced.
'A great deal of scepticism'
Financial investors, who are eagerly awaiting tax reform, may be concerned that the changes will do little to help the US economy in reality. This is because there's little evidence that cutting corporate taxes boosts investment, which is a contentious issue among economists.
In addition, corporate profits are already fairly high, with their percentage of GDP at multi-decade highs. This makes it unclear how further boosting profits for these firms will benefit the wider economy.
IG market analyst Josh Mahony said on the tax reforms: "With sharp gains for the likes of EURUSD and GBPUSD, it is clear that despite the potential bounty for the US economy, there is a great deal of skepticism over the timing and ability to deliver such reforms"
Despite this, the White House has remained adamant that the changes will boost business growth and help middle-class Americans without giving the wealthy a tax cut.
Although recent jobs reports have suggested that there has been a drop of 33,000 roles, there are many indications that the US economy is growing. This makes tax reform an unusual choice for the President as these bills are normally passed when an economy is stagnant.
The Fed and the markets
This has caused some to think that the proposed changes to the tax system will be met by harsher restrictions from the Federal Reserve Bank. Cutting taxes at a time when the economy is expanding may force the hand of the Fed to accelerate its monetary tightening.
It has already slowed down its bond purchase programmes and raised its rates. If the Fed decides to take action, and the tax reform bill is passed, the two could end up negating each other.
Up until now, the markets have shaken off the headlines Trump has caused. However, if these tax reforms fail to boost the US economy as the President has promised, there could be problems ahead.
However, favourable market conditions continue for the time being, heading towards record-breaking climbs.
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