Pessimism abounds on Trump tax reform effort

Tax lobbyists and Wall Street rate the prospects of tax reform as very low.

One veteran tax lobbyist, a former member of the Senate Finance Committee staff, said the chances of a broad tax reform package similar to the 1986 rewrite of the code are “zero.”

Another K Street tax specialist put the odds at “less than 1 in 4,” citing the lack of a detailed plan from the administration and the cluttered agenda.

{mosads}The September schedule is packed and includes measures to keep the government funded and raise the debt ceiling.

After September, Congress will need to deal with the appropriations process for 2018, among other issues that will cut into the energy that can be put into tax reform. 

“I don’t think markets are expecting anything. There was some expectation soon after the election, but I think all of that has been wrung out of market expectation,” said Mark Zandi, the chief economist at Moody’s Analytics. “There’s no evidence that investors or anyone else are expecting any kind of tax reform or tax relief.”

Some believe Congress and President Trump will eventually fall back on a tax-cut plan, possibly focused on allowing businesses to fully and immediately deduct capital expenses — something championed by House Ways and Means Committee Chairman Kevin Brady (R-Texas).

Such a bill could also extend various expired tax breaks, which the White House could hail as fuel for an expanding economy.

However, there are also political damages to such an approach.

Dan Alpert, a founding managing partner at Westwood Capital, based in New York, said, “It seems to me that everyone is going to avoid the hard questions on tax reform and focus on the corporate side.”

But he acknowledged cutting business taxes without addressing taxes for middle-class workers will be seen as “a raw handout to shareholders” and “it’s going to be very hard to achieve that.”

Skeptics cite a variety of reasons for their low expectations in addition to the busy schedule.

Republicans have yet to prove they can pass big bills without bipartisan support and have made no real or sustained efforts to reach out to Democrats on tax reform. Senate Majority Leader Mitch McConnell (R-Ky.) has acknowledged he doesn’t expect much if any Democratic support.

Congress is way behind schedule.

Treasury Secretary Steven Mnuchin initially wanted to pass tax reform by August, but lawmakers have yet to even pass a budget for fiscal year 2018, which would set up the special procedural pathway they need to pass tax reform through the Senate with a simple majority vote.

The Trump administration hasn’t done nearly as much legwork as the Reagan administration did to prepare for the 1986 tax code overhaul.

President Ronald Reagan sent a 436-page report — not including charts and tables — to Congress in May of 1985 that detailed the administrations ideas to simplify the tax code.

So far the Trump administration has only released a broad, one-page outline.

There’s also no Republican consensus on how to offset the cost of tax reform and cutting individual and corporate tax rates.

Gary Cohn, the director of the National Economic Council, insisted in an interview with CNBC Friday that he is still optimistic about major tax reform.

But Cohn’s rhetoric, that there is a “reasonable” chance of tax reform, was hardly emboldening.

“We have a more than reasonable shot because we need to get tax reform done,” Cohn told CNBC. “We need to be competitive. We need to get a business tax system that makes us competitive with the rest of the world.”

Cohn’s comments drew an incredulous response from CNBC host David Faber, who shot back, “Gary, I want to be 10 years younger and six inches taller, but wishes don’t always come true.”

Trump is desperate for a legislative win after the failure of ObamaCare repeal, and that counts for something.

Tax reform has also been a long-sought dream for Speaker Paul Ryan (R-Wis.), who is likely to do everything he can to get it done.

Yet there are doubts that Ryan and Senate Majority Leader Mitch McConnell (R-Ky.) can unify their party.

Ryan’s plan to offset the cost of reform by imposing a 20 percent tax on imports, the so-called border-adjustment tax, has already died because of stiff opposition from big retailers and Senate Republicans such as Sen. David Perdue (R-Ga.).

Another lobbyist involved in tax reform warned that “once you start filling in the pay-fors, you’re instantly going to get some opposition from Republicans, and I don’t think any Democrats are going to vote for it.”

There has been talk of eliminating the deduction for state and local taxes, which invites opposition from House Republicans from high-tax states such as New York, New Jersey and California worried about the 2018 midterm elections.

There are also doubts on K Street about whether there’s enough institutional knowledge within the administration to pull off something as complicated as tax reform.

Cohn and his deputy at the National Economic Counsel, Shahira Knight, earn high marks for their knowledge, but beyond them analysts on K Street and Wall Street see a lack of expertise.

The financial markets wobbled last month after rumors surfaced that Cohn might resign after Trump failed to unequivocally condemn white supremacists and neo-Nazis who marched in violent demonstrations in Charlottesville, Va.

Cohn on Friday sough to quell speculation about his imminent departure by telling CNBC that he spent a lot of time with Trump this past week discussing tax reform.

Yet reports emerged over the long weekend of Trump being annoyed with his economic adviser’s comments on Charlottesville.