Yesterday the Senate approved a budget plan that would allow Republicans to pass a tax cut plan without any votes from Democrats (thus preventing a Democratic filibuster.) The budget plan leaves room for a $1.5 trillion tax cut.
The markets have been waiting for some progress on tax cuts so it’s not surprising that the Standard  Poor’s 500 stock index is up 0.36% as of noon New York time or that the yield on the 10-year Treasury (on a drop in bond prices) has climbed 7 basis points to 2.39%, a five month high. The dollar is also up today with the Dollar Spot Index gaining 0.6% on a three month high for the dollar.
The relatively restrained move, however, is a reflection of how much work still needs to be done to turn the Senate vote into actual legislation on cutting taxes. The Senate bill has to be reconciled with the budget plan passed by the House of Representatives. The House bill includes language that would require spending cuts so that tax cuts wouldn’t add to the deficit. Those cuts are needed to keep conservative fiscal budget hawks on board in the House, but, if adopted in the final bill, they could doom the legislation in the Senate where Republicans can afford to lose only two Republican votes and still hope to pass a budget bill.
On top of that, members of the House and Senate from border states such as Texas and from states with big farm export sectors have threatened–in vague terms so far–to vote against the budget if the Trump administration insists on killing NAFTA. The latest negotiating positions advanced by the United States in talks with Canada and Mexico look, to these members, like a conscious effort to scuttle the talks.
There’s also uncertainty added to the process by the fact that the Republican tax-writing leadership is pushing ahead on an aggressive schedule to pass a bill despite a lack of key details on the content of the plan to cut taxes. No one, for example, knows how many tax brackets there will be or where they will be set. Only yesterday House Speaker Paul Ryan again floated the possibility of keeping the highest 39.5% bracket for the wealthy in an effort to stave off Democratic attacks on the plan as nothing but a huge windfall for the richest 1%.
The last major tax overhaul in 1986 took 11 months from introduction to presidential signature. But the current schedule envisions the House passing a tax bill by Thanksgiving (remember nothing has actually been introduced so far) and then sees the Senate passing a bill in December or early in 2018.
The market remembers how well the effort to jam through Repeal and Replace” on healthcare worked and is justifiably skeptical–if certainly hopeful–that this time will be different.
