U.S. stocks slid on Monday amid concerns that Republican President Donald Trump may struggle to push a sweeping overhaul of the tax code through Congress in the wake of his party’s failure last week to pass broad healthcare legislation.
Trump’s pledge to cut taxes, including a lowering of the rates paid by corporations, was a pillar of his 2016 presidential campaign and provided much of the fuel for the heady stock market rally that followed his Nov. 8 victory.
The White House has sought to refocus attention on that part of Trump’s agenda since the collapse on Friday of a Republican bill to reshape the U.S. healthcare system largely by gutting Democratic former President Barack Obama’s 2010 healthcare law.
“The markets aren’t really concerned about healthcare,” said Randy Frederick, managing director of trading and derivatives for Charles Schwab in Austin, Texas. “What the markets are concerned about is tax policy. So now the more important issue has come to the forefront. The question is, will they be able to get that done? I don’t know.”
The major U.S. stock indexes were down, with the S&P 500 0.3 percent lower, while benchmark 10-year Treasury notes were up 11/32 in price for a yield of 2.36 percent after hitting a one-month low in yield earlier.
Analysts at Bank of America Merrill Lynch said in a research note that a tax bill, “if passed at all, could be a very watered-down version of current proposals.”
The U.S. tax code has not undergone a major overhaul since 1986 during Republican former President Ronald Reagan’s administration, and there is tacit acknowledgement in both parties that some changes are needed, especially in terms of easing the burdens of middle-class Americans.
Democrats, however, are opposed to tax cuts for the rich. They also fought Republican former President George W. Bush’s tax changes that they said rewarded the wealthiest Americans.
That means Republicans, who control Congress and the White House for the first time in a decade, may have to vote as a bloc to pass the tax plan that investors would most want, something far less certain after the healthcare bill debacle.
Trump and House of Representatives Speaker Paul Ryan were unable to keep Republican lawmakers in line for the healthcare legislation. They pulled it off the House floor after a rebellion by the most conservative Republican lawmakers who argued that parts of it were too similar to the Obamacare law it was meant to replace as well as moderates who worried about the number of Americans who would lose health insurance.
Keeping moderates and the most conservative elements of the party together is a tricky balancing act.
The healthcare legislation was Trump’s first major legislative initiative since taking office on Jan. 20.
Trump said on Friday after the failure of that legislation that he would turn his attention to getting “big tax cuts” through Congress. But winning congressional approval of an ambitious tax proposal could be complicated by the same intra-party discord on display last week over healthcare.
“Trump is stuck, he can’t cajole the arch conservatives in the Republican Party and at the same time, my sense is the Democrats don’t want to throw him a bone either, so it is going to be difficult,” said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.—Reuters