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Why Wall Street should not bet on a GOP miracle

  • President Donald Trump's woes aren't the only challenge plaguing the GOP agenda.
  • The Republican Congress faces tough issues, too.
  • Fiery rhetoric seeded during Obama's tenure also poses a problem.
President Donald Trump sits in a fire truck while participating in a Made in America event, with companies from 50 states featuring their products, on the South Lawn of the White House in Washington on Monday, July 17, 2017.
Andrew Harrer | Bloomberg | Getty Images
President Donald Trump sits in a fire truck while participating in a Made in America event, with companies from 50 states featuring their products, on the South Lawn of the White House in Washington on Monday, July 17, 2017.

If it hasn't already, Wall Street may now want to right-size its expectations about what this all-Republican government is likely to achieve: not very much.

There are multiple reasons for that.

Start at the top. Republican President Donald Trump is historically unpopular. He, his family and his aides face deep legal and political jeopardy from Russia investigations by congressional committees and Department of Justice special counsel Robert Mueller. Their protestations of having no contact with Russian operatives have been proven false.

Trump has displayed neither consistent political philosophy, command of the policies he nominally supports, nor skill at reconciling competing claims in the legislative process. He has failed to put forward nominees for two-thirds of the top jobs in his own administration, including posts like director of the Census and undersecretary of the Treasury for domestic finance.

But this isn't all about the president. The Republican Congress has its own problems.

To begin with, the modern-day GOP as a whole disdains government, from the things it does to the people who do them. That complicates running the government in the same way that disdaining medicine would make it hard for someone to be a good doctor.

It is doubly difficult when lawmakers' principal goal is an act of negation — that is, taking away government benefits that voters have become accustomed to receiving. When GOP Sen. Ted Cruz sought to block Obamacare before implementation in 2013, he warned it would be "almost impossible" to stop subsidies for health insurance once they started flowing. He was right.

A third, related problem is the yawning gap between reality and the apocalyptic rhetoric GOP lawmakers deployed against President Barack Obama. They claimed that his "job-killing" stimulus, health care and regulatory policies would wreck the economy. In fact, Obama left Trump an economy that is now approaching full employment.

That gap is all the more difficult to bridge because of the evolution of the Republican Party's base. Leading Republican politicians remain ideologically aligned with their most affluent constituents in support of lower taxes and smaller government. But they depend disproportionately at election time on working-class voters who rely on government benefits and complain that the 21st-century American deck is stacked in favor of the rich.

That will pose an obstacle for tax reform just as it has for health care. The Trump administration has claimed its goal is a middle-class tax cut. But recent GOP tax proposals — from House Speaker Paul Ryan as well as candidate Trump — have delivered their biggest benefits for the wealthy. The White House and congressional leaders haven't unveiled the one they'll seek to pass next.

Politically, cutting taxes is an easier act of negation than cutting health benefits. If Republicans sidetrack their recent professions of concern about budget deficits, Congress may indeed be able to put a bill on Trump's desk for a signature.

If they don't, however, cutting taxes for some Americans will require raising taxes for others. Republicans have displayed no propensity for doing that. A case in point is intense opposition to the "border adjustment tax" that Ryan has hoped would finance deep cuts in the corporate tax rate.

The bottom line: six months into full Republican control of Congress, Trump has signed no major legislation. Major Obama initiatives — including protections for immigrant "dreamers," the Iran nuclear deal, the Dodd-Frank Wall Street regulation law, higher tax rates and the Affordable Care Act — remain in place.

Could all those policies change between now and 2018 midterm elections? Yes.

Would anyone be wise to make a large financial bet on them changing? Definitely not.