According to Goldman Sachs’ Chief Economist Jan Hatzius, there are three major political risks that could destabilize our fledgling economy right now. They are:
- Chances that the repeal and replacement of Obamacare will fail.
- Chances that the government will shut down due to failure by Congress to pass an acceptable spending bill.
- Chances that the debt limit won’t be raised, impacting the Treasury Department’s ability to borrow money.
There are also other risks, such as political or economic crises in Europe and possible military action in North Korea, the South China Sea or the Middle East, but for now, let’s focus on the three domestic issues.
It’s clear to all involved that Obamacare is highly likely to be repealed at some point. Congressional Republicans are itching to replace it, but conservatives have issues with the replacement being pushed Speaker of the House Paul Ryan — known as the American Health Care Act (ACHA).
These concerns may sink the chances of a new healthcare package being passed prior to the Congressional recess that begins on April 10. Holdover provisions from Obamacare, the prospect of reduced or more expensive coverage for enrollees (seniors in particular) and the number of people not covered by the plan were the sticking points in the last replacement version of the ACHA that ultimately got it shut down.
It’s nearly certain that no Democrats will vote for any revised version of the ACHA that Paul Ryan or President Trump crafts, meaning that the next time Republicans bring a ACHA bill to Congress to vote on, they would need to muster every vote they have in the Senate save two, provided that Vice President Pence casts the tie-breaking vote to ensure passage.
As it stands currently, there’s not enough support for the ACHA without changes that would have to be reconciled with the House. In the words of Senator Rand Paul of Kentucky, Congress may have to “scrap” the ACHA and start over if conservatives and lawmakers more allied with the Republican leadership can’t come to an agreement over subsidies, tax credits and coverage.
Realistically, it may not be until May or later that an acceptable replacement for Obamacare may be passed, and even if it is, whether it will be palatable to voters is a big question mark. Congress can’t begin to consider tax reform until healthcare gets resolved.
In 2016, Congress passed a continuing resolution to give the government authority to spend money only until April 28 of this year. In order to prevent a government shutdown (as has happened in 2013 and in 1995), Congress needs to approve a spending plan for the rest of the fiscal year.
In the absence of such a plan, at the very least, there needs to be a short-term extension of Congress’ spending authority. This is being complicated by President Trump’s request to put funding for his southern border wall into a must-pass spending bill.
Senate Democrats have indicated they won’t support such a bill, and they could block its passage because a 60-vote majority is needed for appropriations. At the same time, popular support for the wall is strong, and Republicans are eager to satisfy the right-wing of their base, which is more likely to turn out in 2018 midterm elections than more centrist blocs of voters.
While a possible government shutdown isn’t related to Obamacare replacement or tax reform, it would only delay those measures if it occurred. And if it does, you can be sure that Democrats will try to pin the blame on Republicans for attempting to ram through all of their legislative priorities, thanks to the control they have in both houses of Congress and the presidency.
Goldman Sachs’ Hatzius doesn’t believe a shutdown will occur, but the closer April 28 gets without an approved spending bill in place, the more uncertainty there is, and that affects financial markets. If a shutdown does occur, GDP growth would be reduced, and consumer confidence would drop.
All of that said, the debt limit is unrelated to the above two risk factors; the limit relates to money for items Congress has already approved. The debt limit likely needs to be raised no later than October of this year, and possibly as early as August.
Although many people think the Treasury Department will be able to borrow funds at least until September 15, when an inflow of corporate tax receipts is expected for several weeks. Still, the limit must be raised, and this is likely to happen in one of three ways:
- It could be incorporated in the aforementioned spending plan, in which case such a plan would need to be enacted no later than September 30 — the end of the government’s fiscal year.
- It could be raised via the congressional reconciliation process, in addition to tax reform and certain spending changes. This increase could be included in the 2018 fiscal year budget, which is expected to be debated in Congress after the replacement of Obamacare. The timeline for budget passage is likely sometime in May or June, presuming round two of Obamacare replacement doesn’t drag on past then.
- It could be approved as a standalone legislation package. This could happen if tax reform isn’t possible or isn’t ready by the time the debt limit needs to be raised.Congressional Democrats are well aware of these risk factors, but right now, their base is clamoring for delays and obstructions to Republican priorities in any ways possible. So look for rancorous battles in Washington over the next several weeks and months; it’s sure not to be quiet, given what needs to take place.
Regards,
Ethan Warrick
Editor
Wealth Authority
