US: Healthcare, Tax Reform, and the CR

Published on April 21, 2017

For all the sudden swirl of headlines of a new Treasury tax reform proposal coming “very soon” with “massive” tax cuts for everyone and a “breakthrough” among House Republicans for a revised healthcare bill, it is worth bearing in mind that the political rhetoric behind both only matters in whether they add or subtract to the efforts on Capitol Hill next week to pass the one bill that Congress must pass, the FY2017 Continuing Resolution to fund the federal government to avoid another politically humiliating shutdown after midnight next Friday.

*** Both the conservative House Freedom Caucus and the White House are making demands for amendments to the must pass CR, which is a bit unusual for the party in control of the White House. But this movement away from a “clean” CR  is only adding to the leverage of Senate Democrats, complicating Senate Majority Leader Mitch McConnell’s efforts to avoid the shutdown because he will need between eight to ten Democrats to pass the CR. ***

*** Among the Republican Capitol Hill leadership, a best-case outcome would be enough progress or optimism on health care that, even without a vote, it diverts political attention away from the demands for CR amendments to allow for rapid House and Senate votes on a clean CR by the end of day next Friday. Passing the CR would then open up the legislative calendar in May for a more realistic path for health care and tax reform. ***

*** The less attractive alternate path would be a vote by the House and Senate next week to kick the CR forward for a week or more — a CR on the CR in other words — to “clear the deck” in the belief the House leadership could ram the revised health care bill through a floor vote next week and pass it on to the Senate the week after. Both votes, however, could easily unravel into further delays or another major political defeat if the votes prove to be falling short again. ***

We would caution that the latter path through this three-way intersection next week between healthcare, tax reform, and the must pass needs of the CR would probably increase the probabilities for a shutdown from what we think is perhaps one in five at present to one in three or higher at some point, and to even more serious political roadblocks down the road.

Again, the longer the GOP is unable to unite on key legislation, or for each extension of a CR, it is more likely than not to further delay meaningful progress on tax reform and the FY2018 budget, now running four months behind schedule. And above all, it would tend to bolster Democratic leverage in the Senate, lifting the prospects for their political and economic policy agenda, further eroding the Trump Agenda on which so much of the equity market at least is still running with.

More ominously, such a scenario would set the stage for an even more difficult political dynamic after the August recess, when we expect the White House and Republican political struggles will truly come to a head on the FY2018 budget, the debt ceiling, and tax reform.

Near Term Healthcare and Tax Reform Outlook

Three quick points on the renewed push to revive the healthcare bill and the renewed talk of quick movement on tax reform.

First, we think it very unlikely any re-drafted healthcare bill will be brought to a House floor vote next week. House Freedom Caucus chairman Mark Meadows and the centrist Tuesday Group co-chair Tom MacArthur have been in discussions to bridge the enormous differences that torpedoed the previous American Healthcare Act, and have been floating trial balloons to the press of “breakthroughs” amid White House pressures to move quickly in passing the repeal and replacement of Obamacare.

It is true there will be a previously scheduled post-Easter recess conference call on Saturday among the House Republican conference, and health care will be among the items the leadership will run through. But a post-recess conference call will hardly be the time and means for the House Republican conference members to undertake a detailed discussion of a complicated bill that would determine the status of their likely vote, much less enough for the Leadership to risk another major political setback without the necessary time to whip votes after the promised legislative language has been circulated and debated.

What’s more, Congress has not returned to Washington yet, and many won’t arrive back until Monday, so no whipping will be possible much before mid-week, assuming legislative text is made available quickly enough. Tuesday Group co-chair McArthur also doesn’t yet have support of the full Tuesday Group, whose no votes easily outnumber those of the more conservative HFC.

Meadows also made an impressive and potentially important outreach to Senator Susan Collins of Maine, a key Senate Republican moderate (Collins also has her own health care bill in the works with fellow Republican Bill Cassidy of Louisiana. But for now, there is no evidence yet of the great distance between the HFC and the centrist Senate Republican views being closed, especially in restoring Medicaid cuts to health care.

So we think it potentially possible, but unlikely, a revised health care bill can be written and rushed through House Rules Committee and to House floor votes this week. It is noteworthy that the House leadership is to date being much more cautious on the health care prospects than either the HFC’s Meadows or the White House.

What’s more, any House-passed healthcare bill would still have little chance of quickly passing in the Senate. It would instead be far more likely to be deferred by Majority Leader McConnell to the two Senate committees with jurisdiction for debate and mark-ups.

Indeed, late this afternoon, it was revealed that yet another group of Republicans was working on potential revisions to the ACA, the Senate Budget committee staff. Wyoming Republican Senator Mike Enzi chairs the Senate Budget Committee and previously chaired one of the two key Senate health policy committees, the Senate Health, Education, Labor & Pension Committee.

Depending on what Enzi comes up with either as a stand alone or as amendments to the House healthcare bill, McConnell could bring a Senate version to the Senate floor with a chance of passage by satisfying a large block of moderate Senate Republicans. It would then still have to go back to the House where the splits between the party’s centrist and right wings could re-open all over again.

Long Road to Tax Reform Still Likely

Second, the market may have initially reacted in kneejerk fashion to the “breakthrough” headlines on healthcare as indicating renewed momentum for tax reform. Indeed both Treasury Secretary Steven Mnuchin and National Economic Council Chairman Gary Cohn took the stage yesterday promising a tax reform proposal “very soon” and one that would be “comprehensive” with deep cuts to both corporate and individual tax rates and one that would be budget neutral to boot. President Trump gave a quick pre-weekend fillip to the stock market pronouncing earlier this afternoon there was be massive tax cuts in the proposal that would be unveiled some time next week.

We would again caution, however, on rapid movement on tax reform. A proposal is not legislation, and the House Ways and Means Committee, where all tax bills must originate, is essentially back to the drawing boards, with the near-inevitable demise of the border adjustment tax feature. President Trump can promise whatever he wants on tax cuts, but at the end of the day it is up to the Republican leadership on Capitol Hill and what eventually emerges from the House Ways and Means Committee. In fact, a planned Ways and Means hearing on tax reform for next Thursday has already already cancelled, and whatever proposal the White House issues next week will still mean the long slog of the legislative path from Ways and Means to Rules to House votes and then to the Senate will be as difficult as ever — and with or without a patched together health care bill.

As we have written previously (see SGH 3/27/17, “Capitol Hill: Tax Reform’s Uncertain Start”), we still think any tax reform legislation is unlikely much before the waning months of this year and if there is any tax bill at all, it is likely to be considerably watered down with an aggressive dynamic scoring needed to make the numbers work.

Questions Hanging Over House Leadership

So one week from today, the best outcome will be that the government is funded through the end of the current fiscal year (September 30) and that real progress is being made on both healthcare and tax reform.

But to address why both those key legislative efforts have stalled or have been teetering almost from the outset goes beyond the inexperience of the President or his senior staff, not one of whom has ever written or pushed a bill through the legislative process, or for that matter, have even been in government.

It is likewise more than the usual divisions and so-called civil war within the Republican ranks which, frankly, has defined the party since the infusion of the Tea Party activists in 2010 that also lack any government or legislative experience.

Our sense is that a question being whispered with increasing frequency on Capitol Hill is whether House Speaker Paul Ryan and his immediate leadership team are competent at their jobs. Ryan, it is being said, seems not to understand that the power of the Speaker’s office is that one person always controls the entire process of House actions but nearly never its policy outcomes.

Instead, Ryan spends, nearly all of his time trying to steer and ultimately dictate the political and policy options within his often unruly Republican conference. The reasons why he loses the big battles is a combination that he fails to use his real power — controlling the process by which policy is rendered — and wastes his energy where he has little power — persuading others to adopt his policy formulations.

The starkest case in point is the Border Adjustment Tax, which more than a majority of its members are finding in conflict with the feedback they are receiving from their constituencies. Another example is Ryan’s flawed judgment to write a healthcare bill largely on his own and then push it right up to a floor vote without a decent whip count.

A more decisive or firm leadership is said to be what President Trump thought would be coming from the other end of Pennsylvania Avenue, and its absence to date is only serving to magnify the President’s own clear but understandable lack of legislative prowess.


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