Congressional Republicans’ efforts to reduce taxes and reform certain elements of the U.S. tax code have been impressive thus far. In a matter of weeks, the House has passed its version of a bill, and the Senate is hoping to take up its own bill later this week. To put this in perspective, it took President Ronald Reagan and Congress nearly three years to complete a tax reform bill.
While the political will to get something done is at a fever pitch, investors should nonetheless be mindful of some pitfalls that could delay tax reform or even derail it altogether.
Getting the votes may be an uphill battle
The biggest obstacle, of course, is simply getting the 50 Senate votes needed to pass the bill. Because Republicans are using the reconciliation process to consider the bill, it will need only 50 votes (not the usual 60). As of now, however, it appears that none of the 48 Democratic senators will vote yes, meaning Majority Leader Mitch McConnell will need to get 50 out of 52 – or 96% of his conference – to support the bill. This was the same math that ultimately doomed the healthcare effort. As of now, more than half a dozen Republican senators tentatively oppose the bill or have been noncommittal.
The potential holdouts cite a variety of concerns. There are the deficit hawks worried that the true cost of the bill, which the Congressional Budget Office “scored” at roughly $1.4 trillion over 10 years, is likely higher given the expectation that many individual tax cuts set to expire in 2025 will simply be extended. Others have concerns about the repeal of the “individual mandate” – a cornerstone of the Affordable Care Act. Another handful of senators worry that the bill doesn’t do enough for “Main Street.” Related are concerns about the bill’s popularity; its current approval rating of about 25% would make it the least popular piece of legislation passed in this century (lower than Obamacare or the Troubled Asset Relief Program).
