GOP Works On Spending & Tax Plans

Spending Plan To Be Extended Temporarily

The GOP is working to get the temporary spending plan passed before the deadline on December 8th. Trump discussed the possibility of the government shutting down, but that’s unlikely. The government is great at kicking the can down the road which is what this plan does as the extension lasts until December 22nd. After the extension, the goal for Republicans is to have a separate spending bill for defense because they don’t think the military can constantly rely on temporary plans. However, the Democrats don’t like that because as I’ve discussed before they want equal spending increases for defense and non-defense spending. Passing a separate defense bill is just a new strategy to get more defense spending. The House is figuring out a way to get it done without Democratic support. However, the Senate needs 8 votes to avoid a filibuster by the Democrats. That’s why the GOP is planning to fund the expiring Children’s Health Insurance Program to get Democrats on board. We’ll discuss this in more detail in a couple weeks. For now, it looks likely that the extension will be passed.

The Tax Bill Will Cost A Lot

Getting back into the tax bill, I’ve ignored the deficit issues this plan has because whether it will pass and what is in the bill are far more important to near term stock prices. The more tax cuts, the more stimulative it will be for the economy. However, as the plan gets closer to passing, we need to focus on the effects on the budget because it will start to weigh on the economy. This could be the last big tax cut the country can ever afford with the way the debt is trending. On a dynamic basis, the debt to GDP ratio will rise to 96% if the tax plan is passed instead of the current path of 91% by 2027. This doesn’t include the gimmicks in the bill which have taxes going up at the end of the 10 year period, to make it more palatable for the budget. This reinforces the point I made which is that the government won’t ever be able to cut taxes again unless it reins in spending. The current plan doesn’t even cut taxes for the full term. It’s like trying to fit a size small shirt on someone who is 6 feet tall.