Consensus now puts odds at only 55.5 percent that tax reform will pass Congress this year
The March issue of Wolters Kluwer's Blue Chip Financial Forecasts indicates growing uncertainty that Congress will approve comprehensive tax reform this year. The Blue Chip panel consensus puts the odds at 55.5 percent that Congress will pass comprehensive reform legislation in 2017, representing a sharp drop from nearly 80 percent last month.
This drop can be attributed to greater-than-anticipated opposition to the border adjustment tax, especially in the Senate, coupled with the difficulty Republicans are having in coming up with an acceptable plan to repeal and replace the Affordable Health Care Act. Legislative activity around issues such as healthcare and immigration have so far overshadowed work on tax reform and infrastructure investment, which are likely to have a significant impact on the consensus outlook for the economy.
The odds that a "border tax adjustment" component will be passed by Congress as part of tax reform this year fell to 14.6 percent.
"Without this huge revenue-raising component, taxes would likely be cut by far less than earlier assumed," said Randell E. Moore, executive editor for Wolters Kluwer's Blue Chip Financial Forecasts. "In the alternative, promises that tax reform would be revenue-neutral would need to be abandoned – potentially leading to larger budget deficits."
Other consensus findings and details from the Wolters Kluwer's Blue Chip Financial Forecasts exclusive survey include:
- 50 percent of the panelists predict the Federal Reserve will raise interest rates by 50 basis points in 2017, while 31.8 percent of the panelists predict the Fed will raise rates by 75 basis points.
- Only 22.7 percent of the panelists think the Federal Reserve will raise interest rates at its mid-March meeting, while 56.8 percent of the panelists predict the first rate hike of this year will come at the Fed's June meeting.
- When asked who President Trump may nominate to replace Federal Reserve Chairman Janet Yellen when her term expires in January 2018, the most mentioned name was former Federal Reserve Board governor Kevin Warsh.
- 70.1 percent of the panelists predict that the Federal Reserve will allow its balance sheet to shrink beginning in 2018. The consensus puts the odds of a U.S. recession this year at 15.8 percent and the odds of a recession in 2018 at 21.4 percent.
Wolters Kluwer's Blue Chip Financial Forecasts highlights the prevailing opinion about the future direction and level of U.S. interest rates that is critical for profitable business management. The newsletter is created through a survey with participants from leading firms including Bank of America-Merrill Lynch, Goldman Sachs & Co., Swiss Re, Loomis, Sayles & Company, and J.P. Morgan. The survey compiles forecasts for the next six quarters for multiple variables not limited to the federal fund rate, prime rate, state and local bonds, home mortgage rate and consumer price index.
Wolters Kluwer's Blue Chip Financial Forecasts is published monthly by Wolters Kluwer Legal & Regulatory U.S., a global leader in information services and solutions for legal professionals.
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