“Doing big things is hard.”
That’s what Paul Ryan said following the GOP’s bungled attempt to “repeal and replace” Obamacare.
Of course Paul Ryan already knew that. Why? Well, because he’s part of the “swamp” that Donald Trump was going to “drain” (and fill with his kids and various billionaires). Trump campaigned on being a Washington outsider. He also campaigned on being a great dealmaker. Well as it turns out, those two things are for all intents and purposes mutually exclusive when it comes to being a politician. That is, you can’t just waltz in lip-syncing “My Way” and think you’re going to be able to get anything done because do you know what? It isn’t “your” way. “Your way” may have worked on the campaign trail, but in Washington it’s “their way” where “their” are those “swamp people” you thought you were going to run roughshod over.
Given that, it’s easy to understand why markets are now so skeptical with regard to tax reform and fiscal stimulus. Trump is either going to have to learn the meaning of the term “logrolling” or he’s going to get “rolled” over by Congress on everything he tries to do.
So how are we supposed to make sense of all this? That is, there seem to be a lot of warring factions in Washington (who knew?) and as market participants who are laser-focused on the outlook for Trump’s growth-friendly agenda, we need a guide to those factions and how they lean. That’s where Deutsche Bank (who knows a thing or two about exercising influence in Washington) comes in. Consider the following as a handy pocket guide to help you navigate an exceptionally divisive atmosphere.
Via Deutsche Bank
Table 1 above is a very rough schematic, on how various groups are perceived to lean on key issues. Political positions are obviously fluid. Some observations include:
i) Perhaps reflective of past political positions, the perceived approach of Cohn and Treasury Secretary Mnuchin are in some respects better aligned with the Democrats than the GOP on individual taxes, although more in favor of supply side, corporate tax reform than the Democrat establishment.
ii) There may be serious ambivalences about specific tax cuts among some parties, but middle class tax cuts have cross party support, and would be harder to reject than anything on the expenditure side, like infrastructure spending. Middle class tax cuts is a better starting point than infrastructure spending for encouraging GOP support, before the President goes down the risky route of courting Democrats. As Table 2 indicates, the range of estimates on multipliers slightly favors infrastructure spending, but only modestly over tax cuts for the poor and middle class.
iii) Similarly, there is limited material opposition to a net fiscal stimulus in principle, if Meadows latest comments are an accurate reflection of the Freedom caucus; although the likely process of reconciliation will constrain ‘the permanence’ of any net stimulus.
