Goldman Sachs Has an Epiphany

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Goldman Has Grim Prognosis for Tax Reform Amid Obamacare Debate

 Investors counting on major U.S. tax reform in 2017 are going to be disappointed, according to Goldman Sachs Group Inc.

The problem is that lawmakers and Donald Trump’s administration are going to be so caught up figuring out how to repeal Obamacare that coming up with a new corporate tax system will get pushed to the side, economists at the bank led by Alec Phillips wrote in a note Wednesday.

“This process is likely to take longer than expected, which is likely to delay the upcoming debate over tax reform,” they said. “The difficulty the Republican majority is having addressing a key political priority suggests that lawmakers might ultimately need to scale back their ambitions in other areas as well, such as tax reform.” …

A delay to tax reform has been cited as a risk by other banks as well, which have warned it could spell trouble for a stock market that has priced in Trump’s pledges for a “phenomenal tax plan,” as well as scaled-back regulation and a boost in fiscal spending. Goldman itself says that the prospects of tax cuts have played a huge role in the 10 percent rally the S&P 500 Index has seen since Nov. 8, but that the risks are continuing to rise.

Aardvark is fond of the term “priced in”—it’s something that we savvy financial types might say. But it appears that, while the market priced in big tax decreases, it didn’t price in the Republican’s inability to make coherent policy. It didn’t price in White House’s inability to find its ass with both hands. It didn’t price in the objection of the great unwashed to having their health care yanked away.

Jonathan Chait nicely explains the policy dilemmas, but ends of predicting that Ryan and company will just replicate the Bush 2001 tax cuts. Jennifer Rubin predicts abject failure.

Trump and arrogant lawmakers can swear up and down that protesters in their districts are paid phonies. What they cannot ignore are the legions of small businesses, importers, retailers and consumers who will surely conclude that they’ll be worse off than they are now with the border adjustment tax. It is the sort of issue (tax cuts for the rich! price hikes at Walmart!) that can set off a wave election.

Ryan might persist with the border tax adjustment gimmick, but it likely will mean the end of his tax reform effort. That would be some economic karma if a non-conservative, distortional tax grab knocked the legs out from under a GOP that has decided to discard its fiscally responsible free-market positions.

Aardvark confidently predicts a continuing clusterfuck.