The effort to repeal and replace “Obamacare” hit yet another stumbling block this week when U.S. Senate Majority Leader Mitch McConnell decided to pull the bill from consideration after realizing he did not have sufficient votes for it to pass. What does the latest hiccup on healthcare mean for investors, and what should they pay attention to in the months ahead?
Healthcare is arguably one of the most complicated areas for policymakers to address, and we’ve long been skeptical that congressional Republicans – who have deep divisions on healthcare – would be able to pass reform quickly and move on to other priorities. Case in point: It took President Obama and congressional Democrats – who had bigger majorities in Congress than Republicans have now and shared a unified vision on healthcare – 14 months to complete Obamacare.
And while Majority Leader McConnell will likely take a second bite of the proverbial apple on healthcare after the Fourth of July holiday, we remain unconvinced that even he, a skilled negotiator, can reconcile the seemingly intractable differences within his own caucus to get the 50 votes required in the Senate to pass healthcare at this point.
Up next: tax reform
Regardless of the outcome on healthcare, we expect Congress to try to move on to its other policy priorities in the fall – chief among them, tax reform. But investors should remain cautious regarding optimistic statements from policymakers about the pace of tax reform. Like healthcare, tax reform is complex: The last time we saw comprehensive tax reform was more than 30 years ago, and even then, it took almost three years to enact from start to finish.
And as with healthcare, Republicans are planning to use the arcane reconciliation process, which allows them to pass legislation with only 50 votes, to push through tax reform. This likely means Democrats will not be part of the negotiating process and that Majority Leader McConnell may ultimately face the same challenge he has encountered with healthcare: passing a complex piece of legislation by getting 50 of 52 – or 96% – of Republican senators on board, an arguably Herculean task.
Add to that an already packed fall legislative agenda – including funding the government, raising the debt ceiling and reauthorizing several existing programs – and our longstanding base case continues to be that if we see action on taxes, it won’t be until 2018. Even then, we’d expect the bill to be a smaller, scaled-back “tax reform lite” that would add only marginally to growth and likely would not significantly change the moribund productivity we’ve seen in the U.S. in recent years.
Bottom line: Investors should not hold their breath about seeing much to lift U.S. growth coming out of Congress in 2017 – or possibly even in 2018.
For more of our insights on public policy and other factors driving U.S. and global growth, see our latest Secular Outlook, “Pivot Points.”
Libby Cantrill is PIMCO’s head of public policy and a regular contributor to the PIMCO Blog.