When it comes to steering markets, Washington D.C. is often in the driver’s seat. Just this past week, the Dow and the S&P 500 were down about 1.4%. Accompanying this downward market trend was a fraught political environment, to say the least.
Perhaps the only thing more popular in the past week than March Madness was CSPAN coverage of our politicians arguing about the American Health Care Act (AHCA), which was the GOP’s plan to replace Obamacare. After days of heated debate on Capitol Hill, Republican efforts to eviscerate the Affordable Care Act (ACA) ended Friday before a single vote was cast.
House Speaker Paul Ryan pulled the ACHA bill from the floor Friday afternoon, just a day after President Trump threatened to walk away from health care reform if he didn’t get a vote. Why? The GOP didn’t have enough votes to ensure passage of the ACHA. So, for now, health reform is a nonstarter.
The stock market may have intuited the lack of votes early in the week, leading us to end the week with over a 200-point downdraft. If I had to guess, I’d say the market’s behavior indicated a concern for the efficacy of President Trump’s policy agenda.
After all, if the GOP can’t agree on health care reform, what can they agree on? While some GOP lawmakers want portions of Obamacare to remain intact, others felt the proposed new law didn’t do enough to repeal and replace it. That’s quite a divide.
With the AHCA now dead in the water, Americans are wondering about the feasibility of getting tax reform through Congress. Can politicians come together to restructure the tax code, or will attempts at reform end up a ship that missed the harbor? There’s still much division here.
In my opinion, the most important policy change President Trump and Congressional leaders could effectuate would be via tax reform. If they can successfully reconfigure the tax code, the resulting impact would be felt by all of America, from low-income families to our largest corporations.
Part of the GOP wants corporate tax rates to decrease, from 35% to 20%. Another subgroup says this cut isn’t enough – they want 15%. These folks have dug in their heels; they’re threatening not to give affirmative votes unless reform takes rates all the way down to their 15% bottom line. If no one moves, tax reform could end just like the proposed health care bill: on the cutting room floor.
But success on tax reform is exactly what President Trump and the GOP need right now. They need a significant win to show their solidarity. And they need something to quickly blot out their failure on the issue of health care.
So, is it likely that tax reform will suffer the same fate as its health care counterpart? My answer is “no.” Issues surrounding tax reform are markedly different from those raised in the health care debate. Theoretically, bills targeting tax reform should have an easier time getting through Congress. Tax reform is less personal than health care reform. It is less nuanced; already we have a widely circulated template for reform. And tax reform is something that some Democrats will get on board with.
Think about it. Ask people if they want lower taxes, and nine times out of ten folks will give an emphatic “yes.” Flip the question to health care. Ask ten folks if they want universal health care, and you’re bound to get ten different answers. That’s because the issue of health care is so personal and individualized. Factors like your own health, the health of your children, and your positive and negative experiences with your doctors, all shape unique and endless opinions about health policy.
Taxes are much less personal and they hold a universal truth – no one likes paying them. While folks have a spectrum of feelings for their doctors, our relationship with the IRS can be summed up in two words: dread and avoidance. And almost everyone would love to see taxes simplified.
Of course, there will be debate over who gets cuts and for how much, but the tax reform conversation (and outcome) show promise of being less complicated than the myriad possibilities that accompany health care reform. There is promise for a way forward.
Currently, the tax code comes in at 70,000 pages. In June of 2016, Texas Congressman Kevin Brady, as chairman of the House Ways and Means Committee, led an effort to publish a “Better Way for Tax Reform.” Comprised of 47 changes in all, the number one goal was tax simplification, financial growth across all sectors, and IRS reform. The proposal whittles our seven current tax brackets down to three, with the top rate of 33% versus 39.6%.
The proposed Trump and GOP plans agree on many line items, including small business tax reform, lower tax rates, and repatriation. While some details are different (like eliminating mortgage interest deductions and global deduction caps at certain levels), as a whole the two strategies are congruent. Compare this to the night-and-day differences we saw in the AHCA debate. Here, we have a blueprint. This time, for the most part, the GOP is playing in the same sandbox.
They’re not alone – some Democrats will likely vote for tax reform. After all, they are tasked with representing their constituents. Take for example Tim Cook, the CEO of Apple. In the past, he has given money to both parties, but he’s given more heavily to Democrats, including Hilary Clinton. But Apple and other large tech companies located in very Democratic California want tax reform, too. Remember, these businesses have hundreds of billions of dollars stashed overseas and are advocating a repatriation tax holiday.