CCTV Script 04/12/17

— This is the script of CNBC's news report for China's CCTV on December 4, Monday.

Senate Republicans narrowly passed a bill to overhaul the American tax system in the wee hours of Saturday morning, navigating party fractures to approve a plan that lawmakers were still scraping together in the hours before the vote.

The GOP still needs to overcome significant disagreements for the House and Senate to craft a joint bill and send it to President Donald Trump's desk. Republicans hope to reach a deal by Christmas, a quick timeline considering the differences in their plans.Following the vote, Trump tweeted that Republicans were "one step closer to delivering massive tax cuts" and said he wanted to sign a bill by Christmas.

If signed by Trump, how would the tax cuts, as proposed, impact the US and world economy? Here are three aspects to be tested.

The No. 1 questions is - will the tax cut be attractive enough for multinational corporations bring their cash back to the US? It's important because American companies looking to avoid paying domestic tax rates are holding about 2.6 trillion dollars in overseas earnings, a number that has been rising steadily for years.

Silicon valley giants, including Apple, Microsoft, Cisco, Alphabet and Oracle, are the biggest overseas-cash holders. Now, the new tax bill would require companies to pay a one-time low tax rate on their existing overseas profits -- 14.5% on cash assets and 7.5% on non-cash assets.

GOP bets that tax bill will unlock corporate cash overseas. A research estimated that under the Senate proposal, companies in the Standard & Poor's 500 would pay about $570 billion less than what they would if they brought the profits home under current law.

But are the cuts appealing enough? In fact, American companies pay an average effective federal-state rate of 18.1 percent, thanks to all kinds of deductions and loopholes, although the combined federal and state corporate tax rate is 39 percent. Therefore, some of the companies are even paying with lower tax rates than the new rate proposed.

In addition, deficit is another major concern.

The plan would add about $1.4 trillion to deficits through 2027 before economic growth. It would modestly increase gross domestic product by 0.8 percent over that period, the JCT projected. Including additional debt service, that increased output would boost revenues by about $400 billion.Therefore, the legislation would still fall about $1 trillion short of paying for itself.

Meanwhile, the tax cuts would significantly reduce the value of the mortgage interest deduction by doubling the standard deduction and thus significantly reducing the number of households that itemize and thus take advantage of the mortgage interest deduction.

Lastly, JPMorgan Chase raised its forecast on the number of U.S. interest rate increases by the Federal Reserve next year to four from three, as they expect a Trump victory vould prompt the Fed to raise rates more quickly. This might result in stronger dollar, more cash outflows from EMs, and tax codes could become more competitive internationally.

CNBC's Qian Chen, reporting from Singapore.

Contact Business

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    Please choose a subscription

    Please enter a valid email address
    Get these newsletters delivered to your inbox, and more info about about our products and service. Privacy Policy.