Trump And McConnell Make A "Truce Of Necessity" To Save Tax Reform

Inbetween firing off tweets and defending his decision to end cost-sharing payments to insurance companies, sending healthcare stocks sliding and eliciting accusations of sabotage, president Trump reportedly swallowed his pride and did something he’s been loath to do for months: he called Mitch McConnell.

Axios is reporting that, after months of frosty distance that was the subject of an anonymously sourced New York Times scoop back in August and has occasionally spilled into public view, President Trump picked up the phone yesterday and called the Senate Majority Leader ahead of what’s looking like a make-or-break weak for Trump’s legacy defining, narrative sustaining tax-reform program.

While it may come as a surprise to some - such as Goldman, which still says odds of a tax deal are well over 50% - Axios says Republican insiders privately believe the future of tax reform looks bleak. But if Trump and McConnell can patch things up and work together, even temporarily, the GOP has a better chance at avoiding an embarrassing legislative shutout that could imperil the republican majority in Congress.

The stakes are high: after the House passed its 2018 budget resolution a week and a half ago, unlocking the special budget provision that will allow the senate to pass its reconciliation bill with only 51 votes, the senate bill has yet to be called to a vote. It must pass the senate this week or risk tanking the centerpiece of Trump's legislative agenda. As Axios glibly surmises, “no budget, no tax reform.” Trump and McConnell had a productive conversation on the agenda, and bonded over their joint effort to nominate and confirm conservative judges across the country. Trump was reportedly upbeat and mentioned a Kim Strassell column in The Wall Street Journal, "Scalias all the way down," giving the president credit for "remaking the federal judiciary."

Furthermore, Axios reports that Trump and McConnell communicate more frequently than many realize. They also are said to trade intel such as whip counts. The president and majority leader are scheduled to eat lunch together at the White House on Monday.

Still, as Axios concludes, the truce is one of necessity. It doesn’t represent a meaningful thaw in frosty relations between Trump and the Senate GOP leadership, who the president blames for the biggest defeat of his administration by failing to repeal and replace Obamacare. Of course, Steve Bannon’s “war” with the establishment, a war being waged with the goal of “saving” the Trump presidency, has added further strain to the relationship. But in a sign that fickle Senate Republicans might finally be falling in line, Susan Collins of Maine said on ABC’s “This Week” on Sunday that she was leaning toward a ‘yes’ on tax reform.

Will the market buy, literally and figuratively, this latest diplomatic detente? For the answer, keep an eye on the relative performance of high-tax corps (to the S&P). As we showed on Friday, following a brief burst of euphoria in the last days of September, the market has once again given up hope that Trump can pull off the biggest tax reform package in decades.