Ed. Note: This article first appeared in MarketWatch
President Donald Trump’s dreams of a “very big tax cut” don’t appear imminent, even if the House of Representatives approves the Republican health bill this week. And they appear far less so if the bill bogs down.
Here’s the political landscape as of Wednesday: the House is still planning to vote Thursday on GOP leaders’ plan to repeal and replace the ACA, which is called the American Health Care Act.
Opposition from conservatives who say the bill won’t lower premiums is threatening the measure’s passage, portending either a possible failure of the bill or perhaps its shelving for more work before it even gets a vote.
Meanwhile, Vice President Mike Pence told an Alabama radio station Wednesday morning he’s “very confident” Republicans will have the votes.
President Trump tweeted it’s a “big day” for health care and he’s “working hard!”
But what if Pence is wrong? Market observers are starting to consider that possibility and its effects for the rest of Trump’s agenda.
“If Republicans can emerge from this rough patch with a win on health care, then we expect the GOP will gain confidence and some momentum as it shifts into tax reform,” wrote Keefe, Bruyette & Woods analysts Brian Gardner and Michael Michaud in a note.
Supreme Court nominee Neil Gorsuch was questioned by senators about issues such as Roe v. Wade, the Hobby Lobby case and Trump’s travel ban during Tuesday’s confirmation hearing.
But, they continue: “If health care fails or even lingers into June, the window for addressing tax reform will start to close.”
Gardner and Michaud says they think tax reform can be completed early in 2018, but for that to happen the process would need to start in May or June.
Alec Phillips of Goldman Sachs similarly wrote that if the House bill passes, markets are apt to take it as a positive sign for the rest of the fiscal agenda.
But he does have a warning, calling the Senate the “high hurdle” and citing a continued risk of delay there.
Senators including Tom Cotton, an Arkansas Republican, said they were against the House bill even after it was amended to set aside funding for tax credits to help Americans between 50 and 64.
The Senate vote count is critical, as Republicans control 52 seats.
If they lose three votes the legislation would fail.
A delayed tax overhaul would be a setback for Trump, who campaigned on cutting rates for individuals and businesses alike.
“We want a very big tax cut, but cannot do that until we keep our promise to repeal and replace the disaster known as Obamacare,” Trump said on Monday in Louisville, Ky.
“This is our long-awaited chance to finally get rid of Obamacare.”
There’s at least one other way to think about the link between health care and tax reform.
Isaac Boltansky of Compass Point Research & Trading said in a note that if the Republican health bill dies altogether, the odds of comprehensive tax reform in this Congress would decline but not disappear.
The worst outcome for the market, he added, would be for the health-care repeal effort to keep monopolizing congressional bandwidth.
“A pivot to tax reform — following either the passage or defeat of health-care reform — would likely be viewed positively by the market.”
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