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EventShares Policy Insights

EventShares frequently has conversations with policy experts to discuss developments in Washington. Below is a summary our proprietary insights from this week. 

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December 4th, 2017

Tax reform took a giant step forward this past weekend. After weeks of debate, the Senate passed its version of tax reform in the early morning hours of December 2nd.  Now both legislative chambers have passed a tax reform plan, as the Republican controlled House previously passed its version on November 16th. Both plans cut the corporate tax rate from 35% to 20% and attempt to decrease the corporate interest expense deduction.

With both plans passed, now begins the difficult job of reconciling their differences. The House plan cuts the corporate tax rate in 2018, while the Senate plan delays the rate cut until 2019. The Senate’s delay attempts to decrease the impact of the bill, as a bill must be deficit neutral after 10 years to pass with 50 votes in the Senate. Investors don’t like the Senate’s delay, as evidenced by market volatility around the Senate’s tax reform release last month.

The Senate version also repealed the Obamacare mandate, while the House version did not. We don’t believe a repeal of the individual mandate is a major hurdle, as the House passed a repeal & replace bill earlier this year.

The question is where we’re headed from here. The first step is for Paul Ryan and Mitch McConnel to appoint members from their respective chambers to a Joint Conference Committee. This will not be a traditional conference committee, as all sorts of last minute provisions were layered into the bills. Both chambers must ultimately pass the conference committee version, with the final bill sent to the President for signature.

A few items could sidetrack the passage of tax reform. There is pressure to pass a final bill before the winner of Alabama’s special election is seated later this month. Republicans believe that both Democrat Doug Jones and Republican Roy Moore would both oppose the plan. More immediately, the government deficit showdown this week on December 8th will bring a host of issues back to the political spotlight. Chief among them are immigration and healthcare, which could create distractions.

We continue to believe a bill is ultimately passed. There is strong momentum behind tax reform going into the end of year. Republicans are highly motivated to achieve a signature win ahead of next year’s midterms. Buckle up - the markets may be volatile during the negotiating process.


By: Ben Phillips, CFA  │ Chief Investment Officer, EventShares

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