Government Shutdown Could Roil Markets, Tax Cuts Still Doable: Friedman

The prospect of a government shutdown could roil the markets, at least in the short term, much like Republicans’ failure to pass legislation to replace the Affordable Care Act led to “the largest one-day drop in the market since the election,” according to political watcher and former tax attorney Andy Friedman.

If Congress fails to pass appropriations legislation to fund the government by April 28, the markets “could retreat,” Friedman of The Washington Update notes in a recent commentary. Beyond that date, on April 29 the government will shut down.

An appropriations bill requires 60 affirmative votes in the Senate to overcome a filibuster. “Because the Republicans hold only 52 Senate seats, some Democratic support is necessary for passage,” Friedman explains. “President Trump is calling for cuts in domestic spending, as well as the appropriation of additional funds to build a wall on the U.S.-Mexican border. Democrats have indicated they will oppose these objectives.”

As JEF Economics notes, while government shutdowns tend to be temporary, most civilian government employees are furloughed during such times, most government agencies that provide services to the public are closed, and national parks, monuments and museums are all closed. “In essence, a government shutdown is a huge inconvenience for the public that generates pressure on the politicians obstructing the passage of the funding bills to yield.”

If a shutdown were to occur, “the next most likely course of action would be to pass a short-term” continuing resolution to fund the government, JEF opined. 

As for tax reform, which looks to be in trouble, businesses, Friedman continues, are also “looking forward to tax reform legislation that would cut their tax rates.”

Treasury Secretary Steven Mnuchin’s comments to the Financial Times on Monday show that tax reform passage this year is in doubt.