Wall Street Should Expect Nothing From Washington This Year

As far as Wall Street is concerned, it’s going to be a Seinfeld year in Washington: it will be about nothing and nothing substantive will be accomplished.

Here are the top five things investors and their advisors might be hoping to see but won’t happen.

1. No Help For The Financial Markets. You’re wrong if you think the current extreme market turmoil is going to spur Congress to do anything to improve the outlook for stocks. Not only are there still residual bad feelings on Capital Hill from the 2008 bailout, there’s (1) little understanding about what, if anything, can or should be done, (2) no consensus about what to do and (3) not enough time to develop a plan that will pass the House and Senate and be acceptable to the White House. Add the existing hyper partisanship that’s only going to get worse as we get closer to Election Day this November and the extreme rhetoric of the presidential campaign and it’s not even likely that someone is going to suggest that something be done let alone that it actually happens.

This includes a bailout of energy companies. Some changes to market logistics may be possible, but extraordinary regulatory changes, tax breaks or payments from the Treasury aren't going to happen.

The only way this might change is if the current market turbulence not only continues but turns into a full-blown crisis. Then again, given the number and variety of very serious situations that have occurred over the past 15 years, it’s hard to imagine how big a crisis this would have to be to get over the political fatigue and ennui that exists in Washington.

2. No Comprehensive Tax Reform. Spurred on by House Speaker (and former Ways and Means Committee Chairman) Paul Ryan’s (R-WI) insistence that it’s a priority, the corporate and financial communities seem to believe that tax reform is a real possibility this year. It’s not. As we learned the last time it was debated in the 1980s, comprehensive tax reform is a multi-year effort that is very slow and exceedingly difficult. Whatever is decided will have an impact on virtually every American and that means every representative and senator will want to be involved in some way even if (or perhaps especially) they’re not on a tax-writing committee. There’s no way the debate will be quick and all efforts to expedite it will be strongly opposed.

(For the record, I don’t believe comprehensive tax reform will be enacted until 2019, at the earliest.)

3. No Corporate Tax Reform. The expectation that Congress will tackle corporate tax reform this year even if it’s not going to deal with individual taxes is little more than wishful thinking by the business community. This includes anything having to do with the repatriation of funds and tax inversions, which business incorrectly seems to think is foremost on Congress’ mind.

There are two reasons this expectation is wrong.

First, those interested in individual tax reform believe they’ll need the business community’s support and don’t believe corporations will be that involved in the debate if they’ve already received what they want in separate legislation. In other words, corporate and individual tax reform are connected whether or not the business community wants to admit it and (see #2) individual tax reform isn’t going anywhere this year.

Second, doing corporate tax reform now will likely reduce business campaign contributions after the November 2016 election. The better strategy for Republicans and Democrats is to hint at corporate tax reform happening now but to wait until next year for the serious debate to begin. There may be House and Senate hearings this year that increases the corporate community’s hope (and donations to candidates), but nothing will be enacted.

4. No Budget Deal. Congress and the White House won’t do a budget deal this year because one isn’t needed. The agreement Speaker John Boehner (R-OH) engineered before he resigned from Congress included higher limits on military and domestic spending for fiscal 2017 and there’s little appetite on Capital Hill to renegotiate them this year. The members that want to spend less on domestic programs will be shouted and voted down by the Republicans and Democrats in both houses who want to appropriate at least the full amount.

5. No Government Shutdown. No budget deal also means that the chances for a government shutdown this year are the lowest they've been since Barack Obama was sworn into office in 2009. Spurred on by a House and Senate leadership that, as it did last year, will again buy votes with money for projects for individual representatives and senators (i.e., earmarks), Congress will very likely pass either individual bills or an omnibus appropriation by the start of the fiscal year on October 1. That will do away with the threat of a shutdown a month before the election.