US Senate passes crucial tax reform bill in haste

In an unprecedented sense of urgency and haste in the early hours of Saturday (US time), the US Senate has passed a historic $1.5 trillion tax bill which will bring in major tax reforms overhauling the American tax structure.

The new US tax bill will cut the tax rates for high tax paying individuals and businesses. The bill would cut the corporate tax rate to 20 per cent from the existing 35 per cent. The tax reform is aimed at helping US companies investing America rather than parking profit elsewhere in the world to save on taxes.

The Republicans are confident that the bill will become a law pretty soon may be in the next few weeks or by the year-end. The critics of the bill believe that it could cause huge tax deficits and effect America's finances and welfare programs. US companies are now among the most highly taxed in G-20 countries and this move will bring them to among the lowest taxed. These reforms aim to make America a better place to invest in the short term and bring more money to US companies and the US dollar.

More money in the pockets of high net worth individuals and businesses mean more money coming into the US equity markets. In the US markets, bank stocks rallied, while the tech biggies like Facebook, Google, Apple were dumped by investors as they are least impacted by the tax reforms. The Dow Jones Industrial Average dipped 40.76 points, or 0.17 per cent, to 24,231.59, the S&P 500 fell 5.36 points or 0.20 percent to 2,642.22 and the Nasdaq Composite dropped 26.39 points or 0.38 percent to 6,847.59.

US companies would bring back money parked elsewhere to the US and this would hurt emerging economies, which have dollar liabilities or are dependent on foreign trade. But as the Indian equity markets have now evolved and are more driven by domestic investments (DII), this US tax cut will have little material impact on our markets.