Analyst: Alabama Election Results 'Inconsequential' To Tax Reform

The Republican Party lost a Senate seat in one of the most unlikely places Tuesday when Democratic candidate Doug Jones narrowly defeated accused sexual predator Roy Moore to become the first Democratic senator from Alabama in 25 years. The defeat was a blow for Republicans looking to get legislation through Congress. Investors concerned about a setback for tax reform may have nothing to fear.

Tax Reform Odds

According to Height Securities analyst Stefanie Miller, the Alabama election will have zero impact on tax reform legislation. Height estimates there's a 90-percent chance Republicans will pass tax reform and a 75-percent chance it will be completed by the end of the month.

“Because we think it is highly likely both chambers of Congress vote to approve tax reform by the end of the year, this makes the AL election results inconsequential to our odds,” Miller said Wednesday.

Height analyst Trevor Hanger echoed Miller’s sentiment on Wednesday, saying Moore’s defeat “has little to no meaningful impact on the prospects of tax reform.”

New Details Emerge

In addition to the news out of Alabama, several potential details of the tax reform bill were reported in the press Tuesday, and Miller said this was likely a strategic move among Republicans to gauge public reaction.

Among the reported potential changes to the bill are the following provisions:

• A corporate tax rate of 21 percent (compared to 20 percent in both the House and Senate bills).
• A top marginal interest rate of 37 percent (compared to 38.5 percent in the Senate bill and 39.6 percent in the House bill)
• A mortgage interest deduction cap of $750,000 (compared to $1 million in the Senate bill and $500,000 in the House bill).

Price Action

Investors are taking the Alabama election and the reported changes to the tax bill in stride on Wednesday. The SPDR Dow Jones Industrial Average ETF DIA was up by 0.4 percent and the SPDR S&P 500 ETF Trust SPY was up 0.2 percent.

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