With global equity markets enjoying the biggest weekly inflow since the election on what BofA described was rising expectations of a Trump tax deal, the obvious question is “what is the probability of the Trump tax deal getting done.” And, as it turns out, that is also the wrong question, because as Morgan Stanley shows, the outcome from Trump’s tax proposal is not binary. In fact, there are nine distinct possible results, depending on how the various binomial outcomes pan out.
But first, here is a snapshot of how Morgan Stanley’s Michael Zezas sees the infamous one-pager (which was fully explained by Goldman Sachs earlier in the week).
A starting point, but we don’t think the timing of tax reform is advanced: The release is a signal that the White House is taking more of a leadership role on tax than they did on healthcare. Yet that fact alone doesn’t change the barriers to action and likelihood of delays (1H18 is our estimated timing), in our view, for the following reasons: Republicans still pursuing elusive healthcare deal – Until Republicans ‘cut bait’ on repealing & replacing Obamacare, they can’t practically start the detailed work of advancing tax reform through the budget reconciliation process. While we see little practical reason for Republicans to remain focused on healthcare, the recently proposed MacArthur amendment signals renewed dedication to the effort. As such, our concern is that they become bogged down in passing amendments to AHCA that satisfy the concerns of moderates, conservatives, and Senate reconciliation rules.
This post was published at Zero Hedge on Apr 28, 2017.