While full repeal of Obamacare is all but dead, tax reform is very much alive and it is tax changes — namely reduced tax rates — that the markets are craving, according to political analyst and former tax attorney Andy Friedman.
Friedman of The Washington Update notes in his Thursday commentary (and also told CNBC on Wednesday) that increased market volatility will kick in over the coming months as lawmakers struggle to meet fiscal deadlines in September (funding the government and raising the nation's debt ceiling and a possible short-term government shut-down in early October) and then dive into "the morass of making wholesale changes to the tax code."
However, Friedman says that he remains optimistic that, in the final analysis, "the markets will get what they most crave — a reduction in tax rates — suggesting that market pullbacks could be a buying opportunity."
Greg Valliere, chief global strategist for Horizon Investments, opined Thursday that a tax bill will indeed come into form by late fall, with enactment likely by spring.
Valliere agrees that tax cuts could keep the Wall Street rally "percolating," and "might add a few tenths of a percent to GDP by a year from now," but "stronger GDP growth in the long term depends crucially on the labor force, which needs more workers."
No question, Valliere continues, that President Donald Trump and Republicans "desperately need a legislative victory" in tax reform, "but if the path of least resistance is for a 'sugar high' tax cut — not true reform — the focus may shift to questioning whether a tax cut is needed in an economy that's beginning to hit on all cylinders."
As for a "substitute" for the Affordable Care Act: It's dead, Friedman opines.
Why? Conservative Republicans wanted "greater cuts in government's role in the health care system," but moderates were concerned "about the deleterious effects those cuts could have on lower-income families."
With "full-scale" ACA reform out of reach, "Congress may consider bipartisan changes to stabilize the current system, adding to its already crowded calendar," Friedman opines.
