Capitol Hill: A Shift to Tax Reform

Published on March 23, 2017
SGH Insight
On balance, we think the probabilities are nevertheless tipping, perhaps to 60-40 odds if not worse that the Republican-crafted legislation to replace Obamacare will collapse, either in failing to secure the 215 votes needed to pass in a vote tomorrow, or in the Speaker pulling the bill despite the President's intervention.Instead, we think it more likely the White House will quickly shift the political agenda within days to an accelerated drive for the tax reform legislation, on which the President is said in fact to be restless to get going. Legislation to replace Obamacare would be shuffled to the back of the legislative queue, to be revived in a newly written bill late into the second half of this year.
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After their meeting earlier this evening at the White House with President Donald Trump, members of the moderate House Republican Tuesday Group made their way about an hour ago back to Capitol Hill to HC5, the basement room large enough for House Speaker Paul Ryan’s “come to Jesus” meeting with the full House Republican conference.

Barely into the meeting, President Trump demanded the House proceed with the planned floor vote tomorrow. The White House is aiming to add to the pressure on the GOP “no” votes to swing round to “yes” for an eleventh hour save of H.R. 1628, the American Health Care Act.

*** On balance, we think the probabilities are nevertheless tipping, perhaps to 60-40 odds if not worse, that the Republican-crafted legislation to replace Obamacare will collapse, either in failing to secure the 215 votes needed to pass in a vote tomorrow, or in the Speaker pulling the bill despite the President’s intervention. Ryan can only lose 22 GOP votes, and our best assessment at the start of the GOP House conference meeting tonight is a tally of 32 “no” votes and another 9 “leaning no” votes. ***

***  Instead, we think it more likely the White House will quickly shift the political agenda within days to an accelerated drive for the tax reform legislation, on which the President is said in fact to be restless to get going. Legislation to replace Obamacare would be shuffled to the back of the legislative queue, to be revived in a newly written bill late into the second half of this year. ***

A few quick points on the very rapidly moving developments on Capitol Hill:

** The last gasp White House pressure may still work. It is clear the President has lost patience with the hardline House Freedom Caucus whose puritan demands are threatening to bring the drive to repeal Obamacare to a halt and collapse. Speaker Ryan will also make a heartfelt case to turn the votes, and he will vow the vote will proceed tomorrow even if he is not certain of his whip count. But it will be a tall order.

** Passing the bill would rest on two key developments tonight to turn the odds in favor of an eleventh hour save for Speaker Ryan’s bill: that President Trump successfully brought eight or more moderate Tuesday Group ‘no’ or ‘leaning no’ votes back to ‘yes’ votes and that, crucially, Speaker Ryan is able to whip as many as ten or more members of the Freedom Caucus to yes votes.

** If the House bill as written fails, there are no real Plan B options to revive the health care legislation; Speaker Ryan is unlikely to retreat to submit a new version of the bill — if he could, he would have already done so — and the Senate, we think, is unlikely to start over, as whatever it is likely to pass would run into the same GOP ideological divides and run into the same hardline resistance of HFC members ensconced “in the silos of gerrymandered districts” as one Republican bitterly complains.

** In terms of a new push on tax reform, the GOP ambitions will have to be significantly moderated after the political setbacks with the healthcare legislation. We suspect the border adjustment tax is likely be dropped in part or whole, and with the loss of the revenue offset in the failed Obamacare replacement, the new tax reform bill will need to either abandon budget neutrality altogether, secure a Senate ruling overriding the Byrd Rule for reconciliation, or limit the period of the tax cuts to three to five years to lower the needed revenue offsets.

** Scaling back the size of the tax cuts from 20% to 25% or 28% may also come into play in order to secure passage of the tax reform package, which in any case we think is still unlikely to pass before the second half of this year.

** The mood among the Republicans who are not in the Freedom Caucus shifted from “let’s pass it to get it over with” earlier in the day to “let’s just let the Freedom Caucus kill it and let the Senate take it and start over” by the time of this evening’s meetings.

** In any case, a collapse of the health care bill in the House will severely damage Speaker Ryan and could further limit his ability to steer legislation in the combative House; its collapse will also only further embolden the Freedom Caucus dissidents as well as equally hard right Republicans in the Senate to dig in with demands on the much sought tax reform legislation.

** And the same problems will likewise darken the prospects for the 2018 fiscal year budget, which is already running several months behind schedule and seems destined for a continuing resolution in September to complete the necessary 12 spending bills.

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