The Senate’s vote on a budget resolution on Oct. 19 was a significant step toward advancing tax reform. Republicans have now set an ambitious schedule to get a bill to the president’s desk by the end of the year.
“We are doing things differently with this bill than we did on the health care bill that ended up in disaster,” said Republican Sen. David Perdue (R-Ga.), during a panel discussion at the Heritage Foundation on Oct. 24.
“We’ve got a shot at getting it done this year,” he said.
The window, however, is closing fast, with less than 30 legislative workdays days left in this calendar year. And this puts a lot of pressure on Republicans, he said.
“If we don’t get it done this year, I believe we run the risk of disappointing the expectation that is already built into the bond market and the stock market,” Perdue said.
The Republican-controlled Senate approved the budget for the next fiscal year by a 51 to 49 vote on Oct. 19. This means the Senate can pass a tax reform bill with 51 votes under reconciliation, rather than the usual 60 needed for most legislation.
“The fact that we did not get health care passed means that, I think, on the Republican side there’s even more pressure to get this done,” Perdue said.
On the news of the budget resolution passing, the Dow Jones Industrial Average index reached record high levels. The stock market got a boost from strong corporate results as well.
Wall Street is optimistic that President Donald Trump and Congress will pass a tax bill eventually. And there is still some upside for the U.S. stock market this year and next year.
Goldman Sachs economists estimate a 65 percent chance that tax reform will pass in 2018.
“If tax reform passes, we expect higher equity demand from corporations and exchange-traded funds (ETFs),” said a Goldman Sachs report. And a 50 percent stock market upside is still not priced in, according to the same report.
Sen. Rand Paul (R-Ky.) was the sole Republican to vote against the budget resolution. He objected to its spending levels and said the budget would exceed spending caps by $43 billion.
“In light of the fact that we are for tax cuts, we ought to be for reducing spending, so we don’t explode the debt,” he said on the Senate floor on Oct 19.
Tax cuts could add an estimated $1.5 trillion to the deficit over the next 10 years. However, the Trump administration predicts that tax reform would spur enough economic growth to pay for itself.
According to Perdue, it is possible to get a return on whatever deficit spending is necessary. The tax reform will have a stimulative impact on the economy, he said.
“If you grow the economy by 0.4 percentage points—less than half a percentage point—you are more than paying for the $1.5 trillion deficit,” he argued.
The existing tax code is a significant burden on American workers, according to Joshua Bolten, president of the Business Roundtable, an association of CEOs of leading U.S. companies.
The tax burden falls most on wage earners because, with high tax rates, U.S. companies are not able to invest and hire in the United States as much as they otherwise would, Bolten said at the panel.
“If we are going to ignite this economy and get us out of that 2 percent growth range back up to a more normal range of 3 percent, tax reform is the only mechanism that’s going to make a difference in jump-starting this economy,” he said.
Trump and the so-called “Big Six”—the top members of Congress responsible for tax policy—unveiled a nine-page unified framework in late September. They are still negotiating on the details of the final legislation. According to a CNBC report, Republicans aim to release a tax bill on Nov. 1.