December 2017 - Politics & the Markets (Greg Valliere - Horizon Investments)

The ongoing thoughts from Greg Valliere, the Chief Global Strategist for Horizon Investments, who has a lot of great insights to politics & the ramification on financial markets.

December 1, 2017

Three Scenarios as Tax Bill Hits a Snag

IT'S A LITTLE LATE for deficit hawks to suddenly get religion – they hadn't seen all the other projections that the tax bill would lose a ton of money? Actually, yesterday's new estimate from the Joint Committee on Taxation showed the measure would lose less than some other projections. But it shook up wobbly Republicans and the bill has hit a snag.

SO – IS THIS A DEAL-KILLER? No, the momentum for a bill is still strong. Instead of a runaway locomotive, it now looks more like a commuter train, with stops and starts, but headed toward the advertised direction. So here are the three scenarios:

1. The bill fails: Unlikely. Failure to pass a tax bill – even one as flawed and hastily patched together as this one – would be a virtual death warrant for the Republicans, and they know it. If failure looks even remotely likely, they'll go back to the drawing boards.

2. The bill passes along the lines of the Senate Finance Committee version: Highly unlikely. Everyone knew there would be changes to the committee's bill, so this snag isn't a huge surprise. But some surgery is necessary and the measure is likely to become less generous for business.

3. The bill is scaled back a bit: Likely. Senators were scrambling through the night to accommodate Bob Corker and a couple other deficit hawks. We ranted yesterday about the clumsy "Corker trigger," a terrible idea, and enough Senators now agree with our assessment. So what will satisfy Corker? A less expensive bill that would have to scale back some of the tax breaks. We still think the top corporate rate will be north of 20%.

A SCALE-BACK OF SOME BUSINESS PROVISIONS, which seems likely, could anger Donald Trump, who has been insistent on getting a 20% rate. Would Trump's opposition kill the bill? Nope, most GOP Senators have tuned him out; they're desperate for a bill and view him as an irritant. So this is the likely scenario: water down the bill, get some cover on the deficit and send the measure to a conference committee – or hope that Mitch McConnell's strategic wizardry can somehow avoid a conference committee.

WHAT COULD GO WRONG? The GOP still needs 50 Senate votes for the tax bill; we think they will do whatever is necessary to get those 50 votes – but as of early this morning they're not quite there. High drama indeed in the next few days, but we still think a tax bill will pass.

DISCLAIMER: Horizon Investments, LLC is an SEC-registered investment adviser. The views expressed are those of the author, Greg Valliere, and do not necessarily reflect the views of Horizon Investments. They are subject to change, and no forecasts can be guaranteed. The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. Horizon Investments is not soliciting any action based on this document. In preparing this document, the author has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources. Investing involves risk, including the possible loss of principal and fluctuation of value. For more information about Horizon Investments, contact us by calling 866.371.2399 or visit our website at