Don't Bet Against Tax and Health Care Reform in 2017

Lawrence Kudlow
Fri, 19 May 2017 18:13:43 -0700
Opinion

If the smart money folks on Wall Street think a special counsel to oversee the Russian probes spells defeat for business tax cuts, they're leaning well over their skis.

The Dow Jones industrial average sold off over 300 points on Wednesday, but it may have come back to its senses with a 140-point gain on Friday. And while there's never 100 percent probability in forecasting political risk, it seems the likelihood of health care reform by the summer and tax reform by year's end (or early 2018) is quite high.
Updated: Sat May 20, 2017

If the smart money folks on Wall Street think a special counsel to oversee the Russian probes spells defeat for business tax cuts, they're leaning well over their skis.

The Dow Jones industrial average sold off over 300 points on Wednesday, but it may have come back to its senses with a 140-point gain on Friday. And while there's never 100 percent probability in forecasting political risk, it seems the likelihood of health care reform by the summer and tax reform by year's end (or early 2018) is quite high.

Paradoxically, special counsel Robert Mueller will provide cover for President Trump, as it will take him many months to complete his investigation. The leaks are going to dry up. By law, information on the probe must be protected. So, whatever the outcome, Trump will have months without the attack headlines in which to sell his tax-cut plan.

Meanwhile, amid all the controversies, the GOP Congress knows it could get whacked in next year's midterms if it doesn't govern — a big incentive.

And Trump still has the backing of his core base, which is at least 40 percent of the electorate. These disenchanted voters may not agree with everything he says. But they still strongly believe Trump is their best chance to drain the swamp — to overturn the Beltway elites, to deliver border security, to improve trade deals and to cut taxes and regulations to deliver the full-fledged deeply rooted sustainable prosperity we haven't seen in 20 years.

Warts and all, Trump and his polices is still their vote. (He needs to go out there and rally these folks.)

And all this talk of impeachment based on obstruction of justice is just Democratic political pap. George Washington University law professor Jonathan Turley, who is no partisan, calls it "an awfully thin soup." Former federal prosecutor and National Review contributor Andrew McCarthy says, "the basis for claiming at this point that President Trump obstructed justice is not there." Acting FBI director Andrew McCabe told Congress there's been no interference in the FBI's investigations and no request for additional funding.

And if Comey did write a memo about obstruction of justice, he is legally obligated to report it to the highest levels of the Justice Department. Failure to do so could invoke criminal charges.

Why did he wait until he was fired to have his leakers put this out?

Yet behind all this mess, House Speaker Paul Ryan keeps telling people that Congress can walk and chew gum at the same time. He's right.

Look, the House has already passed a replacement of Obamacare. And a Senate health care working group led by top Republican leaders, including Sens. Lamar Alexander and Ted Cruz, is making progress resolving key issues between moderates and conservatives. There's no reason why the American Health Care Act can't become law by the August recess.

And that opens the door for taxes.

House Ways and Means Committee chair Kevin Brady just began expert tax hearings. After the recess, Brady will likely convene a markup session.

Rep. Peter Roskam, who chairs the congressional tax policy subcommittee, said last week, "I'm of the view that 2017 is the year." He thinks tax reform is easier than replacing Obamacare.

So, following a markup, Ways and Means can report out a bill. And because prosperity is America's No. 1 issue, it will pass the floor relatively easily. And that will put pressure on the Senate to get moving.

It's likely that a tax cut working group will again convene to hash out important details. The border-adjusted tax, or BAT, will have to go. But the very core of the tax bill is a simple three steps: a deep corporate tax-rate cut, immediate expensing for new equipment of all kinds and the repatriation of offshore cash. This is the tonic that will restore capital formation, productivity, real wages and growth.

Both Senate and House leaders have to understand how flexible reconciliation is. It can be nearly anything you want it to be. The key player is Senate President Mike Pence, who can overrule the parliamentarian.

Congressional leaders should heed the words of Treasury Secretary Steven Mnuchin, who has become the administration's leading spokesperson for economic growth and lower tax rates. He told the Senate Banking Committee last week, "What I have said repeatedly is that any plan we put forward we believe should be paid for with economic growth."

He is estimating a 3 percent growth rate by 2021. I suspect it will arrive faster. And the difference between growth of less than 2 percent from the Congressional Budget Office and 3 percent growth is well over $3 trillion in additional revenue. It's the mother of all pay-fors.

And lowering marginal tax rates across the board, especially on large and small businesses, will foster the mother of all prosperities — the one for which middle-class Americans in all those red counties that voted for Trump have been yearning.