The policy analysis provided by the Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party.
Less than a month into his new administration, President Donald Trump is already confronting an enduring truth in American politics: It takes a very long time to get things done in the nation’s capital.
While Trump’s initial days in office brought a flurry of executive orders and other headline-making pronouncements, it will likely be months before we see any progress on his signature campaign promises—namely replacing the Affordable Care Act, tax reform and an infrastructure spending package. Indeed, Congressional leaders—and even Trump himself—have been working to temper expectations about how quickly such changes might happen.
Investors would be wise to keep this in mind. While the market has reacted favorably to the potential for major policy shifts, the journey from big policy idea to actual law could be long. For some issues, 2018 may be a more realistic timeline. Others may never come to pass. And even those that do are likely to undergo drastic transformations as they wend their way through a bitterly divided Congress.
One reason things are moving slowly is that it is taking longer than usual to confirm the president’s nominees for cabinet positions and other high-level posts. By Feb. 10, just seven of the 15 cabinet seats had been filled—the fewest, Republicans claim, in American history. At similar points in their presidencies, Barack Obama had had 12 positions filled, and George W. Bush had all 14 of his cabinet nominees in place. (The 15th cabinet-level agency, the Department of Homeland Security, wasn’t created until late 2002.)
Why are things moving so slowly? First, even in the best circumstances, the process tends to move at a glacial pace. Particularly in the Senate, it is often easier to stop something from happening than it is to make something happen. The narrow margin dividing the two main parties in the Senate and acute polarization of voters nationally has exacerbated the situation.
As we’ve seen, Democrats have already used every parliamentary tactic available to the minority party to slow the confirmation process. Sonny Perdue, Trump’s nominee for secretary of agriculture, hasn’t even had a confirmation hearing yet. A vote on his nomination by the full Senate is likely still weeks away. And Andrew Puzder’s decision to withdraw his nomination to serve as labor secretary means Trump will have to put a new nominee forward, which could add to the delay.
The executive branch has also been moving slowly. As of Feb. 10, President Trump had nominated just 35 people for open federal positions requiring Senate approval—out of the nearly 1,000 seats that he will need to fill. After the cabinet-level positions are settled, he will need to put forward dozens of names to serve as undersecretaries, assistant secretaries and other positions at each agency and other official bodies. That process will likely take many months. Without senior decision makers in place, these federal agencies may be constrained in carrying out new policy initiatives.
And then there’s perhaps the highest-profile confirmation battle of all: the nomination of Judge Neil Gorsuch to the Supreme Court. Hearings for Gorsuch before the Senate Judiciary Committee haven’t been scheduled yet, but are expected to begin in March. How the Democrats will handle the nomination isn’t clear. They may resort to parliamentary tactics, including the threat of a filibuster, to delay the confirmation process. Regardless, expect the Senate to be tied in knots over Gorsuch for at least two to three weeks.
Democrats on Capitol Hill have indicated that they will continue to use parliamentary tricks in the months ahead to derail Trump’s agenda as much as possible. The president’s occasionally divisive rhetoric, late-night tweets and his tendency to buck political precedent have also led to a few missteps that may have emboldened his political opponents.
Timing on key issues
With confirmation battles expected to drag on for several weeks and Congress facing an April 28 deadline to pass an extension to continue funding the government—and thereby avoid another shutdown—some of Trump’s top policy priorities may not see much action until later this year. Importantly, though, the process known as “budget reconciliation,” which allows Republicans to avoid a filibuster and pass key legislation by a simple majority in the Senate, means these issues still have a strong possibility of success, even if it takes more time than expected.
Here are some of the key policies:
- Affordable Care Act. Trump has long said one of his top priorities is repealing and replacing Obama’s signature health care law. However, “repealing” was always going to be easier than “replacing.” There is still no consensus among Congressional Republicans on an alternative. Before he took office, Trump had called upon Congress to complete its work on a replacement by Feb. 20. Then, in early February, Trump acknowledged in an interview that finding a replacement was “very complicated” and that it would likely be 2018 before an overhaul took place.
- Tax reform. House Speaker Paul Ryan (R-WI) indicated recently that he would like to see tax reform approved by the House of Representatives within the first 200 days of the Trump presidency, which would mean before Congress left Washington for its annual August recess. Even if that timetable, which some see as ambitious, were to be met, there’s no telling how long the Senate would take on such a complex issue.
Trump said in early February that “we’re way ahead of schedule” on tax reform, and added that “we’re going to announce something...over the next two or three weeks that will be phenomenal in terms of tax.” But days later he seemed to acknowledge that announcing a plan and passing tax reform through Congress were very different things. He told Fox News he was optimistic tax reform would become law in 2017. In tone and substance, the message seemed to be that once the action shifts to Capitol Hill, there’s little the president can do to speed things along.
While this year is widely seen as the best opportunity for broad tax reform in more than three decades, we think the recent kerfuffle over the “border adjustment tax”—a key element of the still-developing House Republican plan—is indicative of the fight to come. The proposal, which would tax imports but not exports, has proven very controversial, with retailers like Wal-Mart and Home Depot among others already gearing up for a fight. And that’s before a draft of the bill has even been circulated in Washington. As a result, we think the road to tax reform is getting harder, not easier, and that enacting a tax package toward the end of the year is probably a more realistic goal than anything sooner.
- Infrastructure. Once thought of as a likely candidate for the first issue of the new presidency, a $1 trillion plan to repair the nation’s roads, bridges, tunnels, ports, airports, and other infrastructure seems to have moved to the back burner recently. A leaked 2017 schedule from the House Republican leadership indicated that an infrastructure package was unlikely to see action before this fall. There has been disagreement on Capitol Hill about whether the infrastructure splurge will come in the form of tax credits or direct government spending that, in the short term, could increase the federal deficit. That controversy, among others, will need to be ironed out before a package can be moved forward.
The bottom line for investors is to exercise patience. If the first few weeks of Trump’s presidency are any indication, unpredictability could be a hallmark of the new administration. Quick action on any of the president’s big campaign priorities is unlikely. But the slow process of turning campaign promises into legislation will pick up speed in the months ahead, and investors will have a better sense of the prospects for changes that could benefit the markets.