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Tax reform takes a backseat while Trump continues to focus on repealing Obamacare

  • The biggest issue is that the long-anticipated hard pivot by the White House and congressional Republicans to taxes just does not appear to be happening.
  • President Donald Trump continues to focus on repealing Obamacare, tweeting over the weekend and on Monday about the issue.
  • The public has opposed repealing Obamacare and doesn't like any of the GOP options on health care.

The House is gone for the summer but there are still some critical things happening in Washington this week that could impact Wall Street and the hopes for getting tax reform done this year.

The biggest issue is that the long-anticipated hard pivot by the White House and congressional Republicans to taxes just does not appear to be happening. President Donald Trump remains obsessed with getting an Obamacare repeal bill to sign and spent the weekend and Monday morning tweeting about it.

"Don't give up Republican Senators, the World is watching: Repeal & Replace...and go to 51 votes (nuke option), get Cross State Lines & more," Trump tweeted on Sunday.

Then Monday morning he returned to his threats to cut off Obamacare subsidies required under the Affordable Care Act, which remains the law of the land. "If ObamaCare is hurting people, & it is, why shouldn't it hurt the insurance companies & why should Congress not be paying what public pays?" Trump tweeted on Monday.

White House budget director Mick Mulvaney on Sunday said on CNN's "State of the Union" that it is official White House policy that the Senate should not vote on anything else until it takes another Obamacare repeal vote.

"In the White House's view, they can't move on in the Senate," he said. "You can't promise folks you're going to do something for seven years, and then not do it."

The Senate remains in session for the next couple weeks and Sen. Lindsay Graham (R-S.C.) is pushing an Obamacare repeal approach that would block grant federal Obamacare money to the states. But at this point there is no reason to believe this approach will succeed where at least 70 other GOP efforts have failed. Senate Majority Leader Mitch McConnell has said he wants to move on.

The fundamental problem here is that the public doesn't really want Obamacare repealed and doesn't like any of the GOP options on health care. The only real path forward is a bipartisan effort to fix the parts of Obamacare that aren't working. Trump could latch onto this and say he "fixed" health care. Maybe new White House chief of staff John Kelly can convince him of this. But don't count on it.

Until the White House throws in the towel on full repeal, the rest of the Trump economic agenda will remain stalled. And Congress needs to turn its attention — and quickly — to figuring out a way to fund the government past September and raise the debt limit sometime shortly after that. Every day spent twisting in the wind on Obamacare increases the possibility of a shutdown and a debt limit scare that could rattle markets.

The White House also now faces a spiraling crisis with a belligerent and nuclear-armed North Korea that has Trump rattling the saber with China. Threats here include a military conflict with Pyongyang and an economic sanctions fight with the Chinese. Either would crush the stock market.

The box the White House now finds itself stuck in is based on a couple fundamental missteps.

The biggest is starting with Obamacare in the first place. It would have made much more political sense to kick off the administration's legislative push with an infrastructure bill to deliver on Trump's promises to "Make America Great Again." That could have been tied to or preceded a tax reform effort to lower the corporate rate, switch to a territorial system and allow the repatriation of foreign earnings at a reduced rate.

Fresh off some big political wins, Trump and the GOP Congress could then have taken a crack at Obamacare repeal with a coordinated plan and strategy that it could sell to the American people.

None of this happened, of course. And so Wall Street must now contend with the fact that Congress will return in September with a month to fund the government and not much longer to raise the debt limit. There is no strategy in place for either. And Republicans will probably have to wind up relying on Democrats to help them make sure the government doesn't shut down and the nation doesn't default.

And who is to say Trump won't threaten not to sign anything that doesn't also repeal Obamacare? There is big risk brewing and the clock is ticking.

— Ben White is Politico's chief economic correspondent and a CNBC contributor. He also authors the daily tip sheet Politico Morning Money.Follow him on Twitter @morningmoneyben.