Donald and Chuck and Nancy and Tax Cuts
For all the controversy about his compromising with Democrats, Trump’s intervention averted a debt ceiling crisis, as evidenced by the 20 bp back-up in the 10-year. The price was not a December debt cliff – after the December 8 expiration of the debt ceiling suspension, Treasury can employ “extraordinary measures” for at least six months. Trump is not betraying his pro-growth agenda, nor his party, by interacting with Schumer and Pelosi. Democrats have to be engaged for must-pass and politically difficult legislation like the debt ceiling and DACA reform. Trump’s brokering a DACA deal could trigger a long-term realignment of Hispanic votes to the GOP. On tax cuts, Democrats are not being courted – they are being pressured, by a road-show passing through their most vulnerable states in 2018. We think tax cuts are heading for the finish line. The deductibility of state and local taxes is shaping up to be a key negotiating chip, as we predicted.