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— This is the script of CNBC's news report for China's CCTV on September 26, Tuesday.
As the market pays close attention to the upcoming Trump's tax reform happening on Wednesday, a number of details about the tax reform bill were leaked on the weekend.
From these leaks, there are two main changes. The first is the corporate tax rate. Two sources revealed to the media that the target for corporate rate is 20%, which means that the Trump Administration is giving up lowering corporate tax to 15%. The second change is personal tax. According to the latest, the highest income tax bracket may be reduced from the current 39.6% to 35%. A detailed tax reform plan will be released on Wednesday in U.S. This is one of the most important events that the market is watching. However as we are counting down to this release, the tax reform faces its biggest problem yet - the differences between "the Big Six" and President Trump.
Currently, six officials and leaders are put in charge of the tax plan and they are commonly referred to as the Big Six. They include the US Secretary of the Treasury, Mnuchin, Director of National Economic Council Director, Cohn, Republican Senator, McConnell, White House Speaker, Ryan, and others. From these leaked details, 20% of the corporate tax could nearly be the final target, indicating that the Big Six has already given up the previous target of 15% .
But there is still someone who has not given up and that is President Trump. On Sunday, Trump told some media representatives that he was still looking forward a 15% corporate tax. Obviously, Trump is inconsistent with the rest of the tax reform officials, making the negotiations prospects for tax reform even more uncertain.
[Jeffrey Wright, US researcher, Eurasia Group] "The question remains whether Trump himself is going to get on board rhetorically with what they have negotiated. So he was speaking to reporters on Air force One this weekend and cited hopes for a corporate rate of 15% which given the leaks which we have seen out of the Big 6 negotiations is lower than the 20% than they are targeting so a big question we have going forward is whether Trump can get on the same page with the people in his administration that have negotiated this outline."
Other than the differences between the Big Six and Trump, the biggest challenge is still the final vote in Congress. We know that conventionally, passing any legislation requires 60 votes from the Senate, which undoubtedly requires the support from both parties. As of now, it seems that that tax reform will not be passed down. As such, the Trump administration may choose to use the "reconciliation process" to legislate tax reform.
The reconciliation process is a relatively easier option as it only requires more than half of the votes in order to be successful. However, the caveat is that only one reconciliation bill can be passed in any given year process can only be utilized once, with regards to legislation on spending and revenues. This means that Trump and the GOP must choose between either the health care reform or the tax reform to enact the reconciliation process this year.
Therefore, the reason why people are not optimistic about the tax reform is primarily because there are two reforms that require the use of the reconciliation process, the healthcare bill and the tax bill. If Trump chooses to focus on the healthcare bill this year, then the tax reform will only be legislated next year. But there is a risk. If the health reform fails, it will complicate things for the tax reforms. We will continue to pay attention on the details of the draft which will be released on Wednesday, U.S time.
CNBC's Qian Chen reporting from Singapore.