"It’s A Mammoth Task"- Senate Faces Thursday Vote Showdown In "Most Critical Week" For Tax Reform

In what is shaping up as a critical week for the future of Trump's and the GOP's tax reform, Senators return from Thanksgiving break, and look ahead to a marathon debate this week with the aim to hold a floor vote as early as Thursday according to Bloomberg, which notes that should the vote pass, Republican leaders will have to hammer out a compromise between different provisions in the House and Senate bills.

Without a single major legislative victory for the Trump administration and Republicans, it is hard to understate just how critical a tax bill victory would be with year end fast approaching, abd amid concerns that the Democrats could triumph in the Alabama election, there’s a real sense of urgency.

For now, Republican lawmakers told Bloomberg they are still committed to finalizing the bill by Christmas as Senator Scott noted “I hope we can get it done by Christmas…if not, we’ll be here through Christmas, looking at the end of the year”.

Unfortunately for Republicans, it won't be that easy.

As a reminder, the Republican leadership can afford to lose no more than two votes with Politico reporting over the weekend that as many as six Republican Senators are still withholding their support. Or rather one: Wisconsin Senator Ron Johnson said last week that he will not vote for the bill. The problem is that there are many other potential names who are still on the fence:  Senators Susan Collins of Maine, Jeff Flake of Arizona, John McCain of Arizona, Lisa Murkowski of Alaska and Bob Corker of Tennessee have yet to say whether they'll support the measure. Overnight, Steve Daines of Montana was also been added as per Axios: ‘He hasn't gone public with his concerns, but is withholding his support for the bill because he believes it favors corporations over other types of businesses.

As Bloomberg also notes, "the bill’s path to passage isn’t clear yet. Three Republicans -- Tennessee’s Bob Corker, Arizona’s Jeff Flake and Oklahoma’s James Lankford -- have raised concerns about the measure’s effects on the nation’s debt, and Corker has said he won’t support legislation that adds to the deficit. He has said he’d allow for “reasonable” estimates of economic growth."

GOP Senator John Thune of South Dakota said on “Fox News Sunday” that even a small uptick in growth “would cover the cost” of the tax bill. But so far, he and other Senate leaders lack official findings to back their assertions.

 

Murkowski had been seen as a potential “no” vote on the tax legislation because of its proposal to end the “individual mandate” from the Obamacare law that requires people to purchase health insurance or pay a fine. But last week, she wrote in an op-ed for Alaska’s Daily News-Miner newspaper that she would support ending the mandate.

 

Doing so would raise roughly $318 billion by 2027, according to CBO estimates, because some 13 million people would drop their individual insurance -- and wouldn’t tap federal subsidies to help pay for it. Murkowski’s acceptance of the Obamacare provision in the tax bill may clear the way for her support, though Senator Susan Collins of Maine has also said she has concerns about the health-care provision.

Clearly, if any of these Senators go against the bill, then tax hopes will tank in the Senate, the same way the Senate scuttled Trump's attempt to repeal Obamacare with the blessings of JOhn McCain. Understandably then, there is a lot of working going on behind the scenes to prevent such a scenario as Citi observes. Trump hinted as such in his latest tweet: ‘Back in D.C., big week for Tax Cuts and many other things of great importance to our Country. Senate Republicans will hopefully come through for all of us. The Tax Cut Bill is getting better and better. The end result will be great for ALL!

On Sunday afternoon, the Washington Post reported that Senate Republicans are seriously considering several last-minute changes to their tax legislation in an effort to mollify wavering members, according to four people familiar with the discussions.

Back door deals aside, here are the next steps:

  • On Tuesday, the Senate Budget Committee is scheduled to meet on the tax legislation at 2:30 p.m. The panel, which has 12 Republicans and 11 Democrats, could decide to send the tax bill to the Senate floor. Trump is also scheduled to attend the regular policy lunch held by Senate Republicans.
  • If all goes well for GOP leaders, the Senate may begin floor debate, which would culminate perhaps Wednesday or Thursday in a “vote-a-rama”-- a chaotic session in which any senator can offer an amendment to the bill. Democrats would be expected to offer a variety of amendments designed to damage, delay or derail the measure -- which may lead to some political fireworks. The voting would probably take place overnight.
  • If Republicans have the 50 votes they need, Senate leaders may call for a floor vote on Thursday or Friday.
     

Trump will also be busy, selling his tax proposal – on Monday he will have lunch with the Senate Finance Committee to talk about tax reform today, and meet with Nancy Pelosi, Chuck Schumer, Paul Ryan, and Mitch McConnell to discuss the year-end spending deal on Tuesday.

Given the high stakes, Senate Republicans & Trump administration will do everything they can to get the tax bill through. Still, with six unknowns, "it’s a mammoth task" according to Citi. Markets seem cautious about tax bill hopes. USD positioning in the last week has been characterized by selling and squaring, while Monday’s price action so far has seen USD offered across the board. Thus one can argue that there’s more room for a rally on positive tax bill developments than a sell-off on negative news. Watch the flashing red headlines.

Finally, from a market standpoint, recall that according to Goldman the passage of the tax bill means all the difference between a 2,850 year end price target for 2018, and a quick plunge back to 2,400.