Analyst Sees Increased Odds Of A 'Scaled Back' Version Of Tax Reform By End Of 2018

A potential tax reform was the backbone behind the rally in stock prices since Donald Trump was elected president. Height Securities believes there is an 80 percent chance of Congress passing corporate tax reform before the 2018 elections.

An Increase In Odds

Analyst Andrew Parmentier raised his odds to a 40 percent chance (from 30 percent) that tax reform contains a border adjustment.

“[W]e foresee a softening of the language in Ryan’s “Better Way” plan,” Parmentier wrote in a note.

The analyst also believes there is a 30 percent chance of a smaller-scale, corporate / international reform bill with a rate cut of 5–7 percentage points coupled with a middle-class tax cut and infrastructure spending.

Parmentier also put 5 percent odds on a “big, beautiful” Trump-style tax cut adding trillions to the debt with no offsetting revenue.

The analyst said reaching a consensus over ACA would boost hopes for passage of tax reform in 2017. Even then, he doesn’t believe Treasury Secretary Mnuchin’s August target is achievable.

Is Success Even Plausible For 2017?

“In fact, we are starting to question whether success in 2017 is possible, but we believe it will have to occur by next spring to have any chance of passage prior to the 2018 elections,” Parmentier continued.

On the border tax front, the analyst is of the view that Team Trump would prefer a debt-fueled tax cut bonanza that eschews criticism that 20 percent tax is too high, and instead takes their concerns with foreign trade practices to the negotiating table on NAFTA and at the WTO.

“But in the world where budgetary offsets still matter in order to use the reconciliation rules to get through the Senate – the world we live in today – the $1 trillion raised by border adjustability is real money,” Parmentier added.

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