Developments regarding the Republican’s tax reform came at the forefront of the U.S. economic agenda last week.
Republicans in the Senate released their own tax reform bill Thursday, a week after House Republicans unveiled a bill that would overhaul the U.S. tax code.
Despite sharing the same name, the Tax Cuts and Jobs Act, the two bills have some important differences.
The Senate bill includes the elimination of all deductions for state and local taxes, a move that would disproportionately affect 44 million Americans living in states with high taxes, including California, Connecticut, Illinois and New York.
The two bills also differ in terms of number and rates for individual income tax and the timing for corporate tax cuts. The House bill would reduce the number of individual tax brackets from seven to four while the Senate version retains the current seven brackets. The Senate bill would also reduce the top corporate tax rate from 35 percent to 20 percent, similar to the House, but it delays implementation until 2019.
The two bills will have to be reconciled and approved by both houses of Congress before it can be sent to the White House to be signed by President Donald Trump.
However, Republicans are likely to face some difficulty in completing the tax reform before the year-end as promised.
- Tax reform to increase public debt by $ 1.7 trillion
Other negative news for the GOP tax reform came from the U.S. Congressional Budget Office (CBO).
The bipartisan budget watchdog predicted that the Republican tax plan would increase the national debt by $1.7 trillion by 2027.
The CBO also estimated that the ratio of public debt to the gross domestic product (GDP) would reach 97.1 percent by 2027 if the new tax reform is enacted. The debt to GDP rate is expected to go down to 91.2 percent in the next 10 years if the current tax system is maintained.
Furthermore, the Tax Policy Center, an influential Washington think tank announced that the Republican tax plan would provide the largest tax cuts to the richest Americans.
According to its analysis, the House bill would allow the top 1 percent to save 22 percent in taxes.
- New week: inflation data and Fed messages
This week the markets will follow an intense data release schedule and the speeches of Federal Reserve officials in addition to developments in the tax reform effort.
Following the producer price index on Tuesday, the consumer price index, known as headline inflation, will be released Wednesday. Retail sales and industrial production are among the other important data of the week.
Fed officials who are expected to speak during the week include Chicago Fed President Charles Evans, Boston Fed President Eric Rosengren, Cleveland Fed President Loretta Mester, Dallas Fed President Robert Kaplan and Fed Governor Lael Brainard.