June 28, 2017
One month after Goldman gave up on Trump being able to pass any major (or minor) tax package in 2017, overnight – in the aftermath of Senate GOP’s deplorable failure to find the needed 51 votes to ” repeal and replace” Obamacare- Goldman’s Washington analyst Alec Phillips throws up his hands, and no longer believes that passage of Obamacare is possible.
In a note that looks at the current state of health legislation, titled appropriately enough “Nearing the End”, Goldman summarizes that Senate Republican leaders have postponed the vote on health legislation that had been tentatively scheduled this week. A vote is possible in two weeks, but further delays are possible.
Phillips does note that there are still some arguments in favor of eventual enactment: Republicans will be under pressure to follow through on a long-standing political commitment, and the estimated deficit reduction and tax cuts in the health bill could be useful in passing tax legislation later. Fixing the existing program for the coming year will also be necessary.
However, he is skeptical and says that “these factors are likely to be outweighed by the political obstacles. Estimates of the potential increase in the uninsured population seem unlikely to improve substantially even after revisions to the bill. Public support for the effort is also weak, and intraparty divisions appear to pose too many obstacles. At this point, enactment of broad health legislation like the House passed or the Senate is contemplating seems unlikely.”
That said, Goldman is not too worried about the implications of the Senate’s failure, saying that “the prospects for passage should also be somewhat less important to broader financial markets than they might have been several months ago. The debate over health legislation is likely to end—either with enactment or a failed vote—by mid- to late July, allowing the rest of the budget process to proceed, eventually leading to consideration of tax legislation. In the less likely scenario that broad health legislation is enacted, there would be few near-term economic effects as most of the changes do not take effect until 2020.”
Goldman’s full note:
Health Legislation: Nearing the End
Markets are once again focused on the potential for a congressional vote on health legislation, this time regarding the Senate’s Better Care Reconciliation Act (BCRA). This is presumably due to the need to move beyond the health bill before tax legislation can be addressed, as discussed below, and because of the broader signal that passage of a health bill might send regarding the rest of the Trump agenda.
However, the effort to replace the Affordable Care Act (ACA) has been set back once again with the announcement that no vote will be held for at least another two weeks. At that point, there are three potential options:
The situation is fluid but at this point our expectation is that the Senate will ultimately fail to pass broad health legislation similar to the House-passed bill or the recently introduced Senate legislation. While we see this as a fairly close call, our view is based on the following considerations:
Exhibit 2: Opposition at both ends of the political spectrum
Source: Federal Election Commission, Voteview, Goldman Sachs Global Investment Research
Of course, there are arguments in favor of eventual passage. These include:
Campaign commitments: After House Republican leaders postponed a long-awaited vote on their health legislation earlier this year, it had appeared that debate might turn to other issues on the agenda. However, the health effort was of such political consequence that Republican leaders ultimately returned to the issue. It is possible that congressional Republicans will continue to press the issue until health legislation is enacted, even if it takes a while longer. That said, our sense is that Senate Republican leaders like Sen. McConnell have a limited appetite for further debate on health care, as discussed below.
Fiscal benefits: The Senate health legislation has two potential benefits for the rest of the fiscal agenda. First, CBO estimates that the bill would reduce the deficit by $321 billion over the next ten years. These savings could potentially be redirected toward other legislative efforts, like tax reform. Second, the bill repeals the taxes enacted in the ACA, reducing revenues by $563 billion over ten years. By offsetting these tax cuts with the spending cuts in the health legislation, this would relieve pressure on congressional Republicans to address the repeal of ACA taxes in tax reform legislation later. That said, our expectation is that the final Senate bill, if it passed, would probably not save more than the $119bn the House bill was estimated to save. While helpful, this would not meaningfully change the outlook for tax reform.
Fixing the existing program: The Senate legislation includes $50bn over the next four years for this purpose, as well as explicit funding for cost-sharing reduction (CSR) payments (the uncertainty surrounding the Trump Administration’s willingness to continue making CSR payments had led some insurers to increase their proposed premiums for 2018). If the Senate does not approve the pending legislation or something similar, congressional Republicans may attempt to pass a more narrowly focused package to stabilize the individual insurance market which includes the subsidized plans offered through “exchanges”.
While the health debate is clearly relevant, in our view it is becoming less important to the broader agenda, for a few reasons:
Over coming days, we expect to hear more regarding potential modifications to the original Senate proposal. If progress is made during the remainder of the week, it is possible that a revised CBO estimate could be produced not long after the Senate returns from recess on July 11. A vote looks possible anytime between late in the week of July 10 and the end of July, though at this point the odds seem stacked against Senate passage.
This article was posted: Wednesday, June 28, 2017 at 8:50 am