Financial markets have been getting increasingly excited about the prospect for major tax cuts or reforms following last week’s passage of the Senate’s budget resolution and the House then voting to accept the Senate’s plan yesterday. The Republicans clearly have plenty of momentum now, which is absolutely crucial if they want to pass this legislation. However, it will be hard to sustain, and they are still some way away from actually passing a budget, let alone passing and enacting a very significant and wide-ranging tax reform bill. As a result, financial market participants would be wise to pause and take a deeper look under the surface of the legislative process, including all the necessary hoops and ladders that must be gone through in order to get a bill on the President’s desk and signed—the process (as intentionally designed) is daunting and slow. In this week’s Economics Weekly, we leave aside the merits or demerits of any tax cut proposals and have produced a simple primer on the path such legislation will need to take in order to actually reach its final destination.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.