By Brian Maher
This post Trump’s $2 Trillion Headache appeared first on Daily Reckoning.
Bad news first…
By 9:30 this morning the Dow was down more than 700 points off its March 1 high.
And since the Dow closed the day down again (-45 points), that’s eight straight days in the red — its longest losing streak since 2011.
Now the good news…
The Dow rallied some 113 points since 9:30. So it ended the day only down 45.
Meanwhile, the Nasdaq’s up a workmanlike 11 points. Health care stocks are up!
(To think, some readers accuse us of harping on the negative.)
But after Friday’s health care debacle… a $2 trillion question mark now hovers over Wall Street.
It’s a question mark Trump must tackle — and fast. At stake is the beating heart of his economic agenda.
Details to follow…
But first, what’s the scuttlebutt on Wall Street today?
“The market’s patience is wearing thin,” warns UniCredit’s head of global FX strategy Vasileios Gkionakis, adding: “It definitely doubts the U.S. administration’s ability to push forward [with] this so much talked and discussed agenda including the fiscal stimulus, tax deregulation, tax cuts.”
“Investors are viewing this setback as a broader loss of faith in the Trump administration’s ability to deliver on other campaign pledges — namely tax and spending policies, which have underpinned asset prices since the U.S. elections,” affirms Viraj Patel, ING currency analyst.
More or less what you’d expect.
But Zero Hedge’s pseudonymous Tyler Durden raises a far more urgent concern…
With Obamacare spending cemented in place, Durden says Trump’s now facing a “nightmare scenario” — a $2 trillion funding shortage that threatens tax reform.
Durden cites Larry Lindsey, former economic adviser to George W. Bush. Lindsey argues that the failed Ryan plan was crucial to tax reform because, unlike Obamacare, it would have generated revenue:
[It was] necessary for budgetary reasons, for tax reform, because it was a revenue gainer.
But now that the Ryan plan’s sunk, Obamacare’s spending increases are locked in place. That leaves less room for tax cuts — without exploding the deficit.
Essentially, the Ryan plan’s failure leaves much less room to lower taxes.
That is, much less room for the lower taxes that goosed the Trump “reflation trade.”
If Republicans want to forge ahead with tax cuts without ballooning the deficit, Durden figures they’ll have to slash $1 trillion in spending over the next decade. Or find the revenue somewhere else.
A nasty cleft to be in.
As Durden explains, “If Republicans want to eliminate the Obamacare taxes as part of tax reform and ensure the bill does not add to the deficit… they will have to raise almost $1 trillion in revenue.”
So that accounts for $1 trillion. But we mentioned a potential $2 trillion revenue shortfall.
What accounts for the other trillion?
Enter the border adjustment tax (BAT)…
Team Trump has proposed a controversial 20% border adjustment tax. They estimated it would generate up to $1.18 trillion in revenue over the next decade. That added revenue would help clear space for the other tax cuts.
As The Hill puts it:
“The BAT would levy a …read more
Source:: Daily Reckoning feed
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