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Tax Bill Fiasco: Senate Considering 1 Year Corporate Tax Cut Delay; Dollar Slides

Suddenly Republican tax reform is looking deader than a doornail.

According to the Washington Post, which cites " four people familiar with a draft of the legislation " not only is there little to no compromise on the way forward, but the only thing Senate Republicans leaders can agree on is to punt the centerpiece of the GOP tax plan by at least a year, and are considering a one-year delay in the implementation of a major corporate tax cut. This change would lower the corporate tax rate from 35 percent to 20 percent in 2019, not 2018 as currently constructed by a House GOP bill. And while the delay would save $100 billion in much needed funds, it would be met with resistance from Trump, who wants the tax cuts implemented immediately.

In any case, to ensure that companies don’t postpone major investment decisions and wait for the lower rate in 2019, Senate Republicans are considering allowing companies to immediately deduct capital investments in 2018 from their taxable income, the WaPo sources said.

The news comes amid the expected growing opposition in the Senate to the current bill. One day after Trump nemesis John McCain said tax reform is "dead on arrival", on Tuesday, Sen. Ted Cruz said that the House tax bill could end up raising taxes on some middle-class Americans, and he pushed for assurances that the Senate bill would lower everyone’s taxes. Meanwhile, senators Marco Rubio and Mike Lee are pushing for an expansion of the child tax credit beyond what was introduced in the House. They have called for raising the child tax credit from $1,000 to $2,000. The House bill would raised the credit to $1,600.

Furthermore, the WaPo adds, that significant differences are also expected on the individual income-tax provisions.

Senate negotiators are planning to eliminate the state and local tax deductions that families take, going further than the House bill. They are also expected to retain roughly seven income tax brackets, rather than the four the House has proposed.

 

Details could change ahead of a formal release of a bill this Thursday by the Senate Finance Committee.

There will be a number of other changes to the taxes that certain businesses pay and the way companies are taxed on overseas earnings. Senate negotiators aren’t planning to include a temporary $300 “family flexibility credit” contained in the House bill. It’s this credit, which would expire after five years, that has fueled criticism that the House bill would eventually lead to higher taxes for some middle class families.

Separately, Bloomberg reports that on Tuesday afternoon President Trump called into a meeting between Senate Democrats, National Economic Council Director Gary Cohn and White House Legislative Affairs Director Marc Short, Democratic Sen. Jon Tester tells reporters. Tester said that Trump spoke (maybe screamed would be a better description) for about 15 minutes by phone from Asia and insisted the rich will be hurt by the tax bill.

During the same meeting, Dem. Senator Sherrod Brown gave Cohn copies of two bills he wants in the tax package, including one that would boost income of those making $20k-$70k. Brown added that Trump said over the phone he liked the ideas in the bills Brown presented; “I don’t know if McConnell is not hearing what the president is saying or if McConnell is not paying attention," Brown says.

Or maybe Trump just hasn't heard yet that Senate Republicans, after failing to repeal Obamacare not too long, now plans to concede on the most important aspect of Trump's proposed tax plan.

In any case, a decision on delaying the implementation of the corporate rate has not been made, the WaPol said. House Ways and Means Committee Chairman Kevin Brady (R-Texas), in writing his legislation, was considering having the corporate tax rate cut phase out after eight years but made a change the night before the bill was introduced to effectively make it permanent.

With the news of the potential delay hitting the market, the dollar in general, and the USD/JPY in particular was the first casualty and the pair was sold by leveraged accounts in Tokyo.