In recent days, the U.S. House of Representatives passed a historic tax reform bill (the first since 1986), and the Senate Finance Committee approved a different Senate version of the tax reform bill and sent it to the full Senate for a vote. This sets up the possibility of a full Senate vote after Thanksgiving, followed by a House-Senate Conference to reconcile the two versions of the bill, then a final vote on a single bill passed by both houses of Congress before Christmas and presidential approval before the end of the year.
That’s the good news. Here’s the bad news. There are plenty of hurdles in the way as this article describes. Before the Senate can take up the tax bill, the House and Senate both have to deal with a possible government shutdown on December 8. That means finding some compromise on a long list of hot button issues including funding for Trump’s wall with Mexico, deportation of illegal immigrants brought to the U.S. as children (the “Dreamer Act” also referred to as “DACA”), funding for Planned Parenthood, funding for Obamacare (called “SCHIP”), and more.
Then there’s the fact that Republicans can only lose two votes from their Senators before the entire process fails. Ron Johnson of Wisconsin has already come out against the bill and others may follow. This is further complicated by the possible loss of a Republican Senate seat in a special election on December 12 in Alabama because of the Roy Moore scandals.
The stock market has already priced in a tax cut. Markets won’t go up much more if the bill passes because they already expect it to pass. But if the bill fails (for any or all of the reasons listed above) markets could plunge on the bad news. Seems like a good time to lighten up equity exposure and go to cash until the legislative dust settles.