It’s impossible to say. This week’s major macroeconomic news in the United States was the release of an outline for the widest sweeping tax reform since the 1980s. While the official release is 9 pages, it amounts to a few bullet points on each page which touch on several significant areas of taxation. The language appears to be purposefully written as loose guidelines intended to give flexibility to lawmakers to work through what will be grueling negotiations on both sides of the aisle.
It is natural to question whether any change is possible since so far the Administration has not been able to work with Congress to pass significant legislation, the recent healthcare reform bill being the most recent. Despite being the product of the “Big Six” comprising of Treasury Secretary Mnuchin, National Economic Council Director Gary Cohn, and senior Republicans in the House and Senate, these loose guidelines will face challenges even within the majority party. In particular, Tennessee Senator Bob Corker, who is anticipating retirement at the end of this term, has stated that he will not sign anything that adds meaningfully to the deficit. Arizona Senator John McCain, who was the tipping point against healthcare, repeats the demands that it be a bipartisan process with all necessary procedures which, if followed, bogs down the process or if not followed causes him to vote against it. The Republicans hold the majority in the Senate by only two seats, not leaving much room for error.
There are provisions in the guidelines which appear to be red herrings. For example, the repeal of the estate tax. Politically it must be included because it has been on the Republican platform for some time. That said, in the grander scheme it is likely less stimulative to growth to repeal the estate tax versus accelerating depreciation or to drop corporate and individual tax rates. The Big Six might be putting items in the framework intentionally wanting to “give to get.” Speculation is useless until we see some actual drafts stemming from this release which will likely not be until November as budget reconciliation and other administrative items must be attended to. Until then, guessing at the potential economic and financial market impact is impossible to say.