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July 25, 2017 at 09:11 AM
If health care reform stalls, will tax reform stall with it?
Lawmakers and industry officials say no, with LPL Financial predicting an upcoming “pivot” toward tax reform.
Indeed, House Speaker Paul Ryan said so recently while making the case for a tax overhaul.
“We will do tax reform no matter what happens with any other issue like health care reform because we know we have to do tax reform,” Ryan said on July 21 to employees at a New Balance factory in Lawrence, Massachusetts. “It’s a once-in-a-generation opportunity.”
In his Tuesday commentary, Burt White, LPL Financial’s chief investment officer, stated that Republicans’ latest unsuccessful attempt to reform health care signals “we are closer to the pivot toward tax reform.”
Despite challenges, LPL, he said, continues “to expect a tax deal to get done in early 2018 that may provide a nice boost to corporate profits and could help to support stock valuations.”
The likelihood of the health care “status quo” surviving has “important implications for the health care sector, which should benefit from spending remaining at elevated levels,” White opined.
The likely “impending finality” on health care, he continued, “should open the door to tax reform negotiations.”
If the Republicans can’t get a health care deal done, “why would tax reform — also divisive and complex — be any different?” White asked.
Because tax reform is different, White said, for these reasons:
- The pressure is on. Considering the midterm elections in 2018 are just 15 months away, pressure is on legislators to act on plans to improve economic growth. The experience to date on health care only adds to the urgency Republicans must feel to deliver on their campaign promises and achieve a big political win with control of Congress and the White House.
- More unity. Republicans in Congress are more united on tax reform than health care, and [LPL has] more confidence in the Trump administration’s ability, led by Treasury Secretary Steven Mnuchin and Chief Economic Advisor Gary Cohn, to lead on this issue.
- Progress has been made. [LPL's] primary contacts in Washington have indicated that substantial work on taxes has already been done.
- Bipartisan support for repatriation. One of the challenges with lowering the corporate tax rate is replacing the lost revenue to limit budget impact. A reduction in the tax rate companies must pay to bring overseas cash back to the U.S., which enjoys bipartisan support, could generate $150 billion or more in additional tax revenue over 10 years.
- Dynamic scoring. Dynamic scoring allows policymakers to assume an incremental growth impact, and more tax revenue, from the reduced tax rate that can be used to offset the cost of lowering the rate. Republicans may also be able to change the budget baseline to facilitate revenue-neutral scorekeeping (revenue-neutral policy is required under reconciliation, which is the legislative maneuver necessary to get tax reform through Congress with only a simple majority rather than the standard 60-vote requirement).
The reasons cited likely cement a tax deal making it to President Donald Trump’s desk and signed in early 2018, White predicts, “before the midterm election campaign season heats up.”
