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Strategas Research: Trump's Firing of Comey May Hasten Tax Reform

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By    |   Wednesday, 10 May 2017 01:59 PM

President Donald Trump's unexpected termination of FBI Director James Comy reportedly could motivate Republican lawmakers to speed up tax reform to preserve their majority in the House of Representatives.

"Republican members of Congress will want to speed up their policy achievements to overcome recent political developments," according to Strategas Research, CNBC reported.

Trump said he fired FBI Director James Comey, who had been leading an investigation into his 2016 presidential campaign's possible collusion with Russia, over his handling of an email scandal involving then-Democratic presidential nominee Hillary Clinton, Reuters reported.

"While distractions from investigations could hinder policy developments, our sense is that Republican members of Congress will want to speed up their policy achievements to overcome recent political developments," writes Dan Clifton, head of policy research at Strategas.

Clifton said he expects Congress to complete tax reform in the first quarter of next year, not in 2017 as previously expected, CNBC reported.

"Democratic talk of impeachment increased significantly last night. The narrative is not going away and will continue to hamper the lightly staffed Administration. This will also make bi-partisan compromise more difficult in the coming months, and the debt ceiling remains our No. 1 policy concern. From a policy perspective, does this in fact force Republicans to get their act in gear and actually get tax and healthcare reform?" Clifton notes.

"Passage of the Trump agenda, most notably with tax reform should help keep confidence elevated, but any undermining of confidence from political developments and/or the inability to enact the agenda could move the needle in the opposite direction," according to Clifton.

"As such, Republican political troubles may serve as a catalyst for policy actions," he wrote.

"From a political perspective, this is not enough growth to keep U.S. voters happy. In fact, U.S. voters have removed the party in power in five of the past six federal elections. This level of political volatility is very rare in U.S. history and it is the direct result of slower economic growth," he noted.

"Voters will continue to push out the party in power if they do not feel their standard of living is improving...The Republicans have been given a once-in-a-lifetime opportunity to prove that getting productivity higher, via tax cuts and deregulation, can help lift GDP even if labor force growth is slowing," he noted.

To be sure, Wall Street seemed to agree that Comey was a distraction from more-important economic and financial matters.

U.S. stocks struggled for direction on Wednesday as investors weighed a batch of weak corporate earnings amid the Comey firing.

"This is just another distraction," said Jeff Zipper, managing director of investments at U.S. Bank's Private Client Reserve in Palm Beach, Florida.

Dealing with replacing Comey takes Congress "further away from getting those changes" the stock market is looking for, importantly tax reforms, Zipper added.

Trump's promise to significantly cut taxes and ease financial regulations has underpinned a record-setting rally on Wall Street since his election in November.

However, there was some apparent movement forward with Trump's tax strategy.

Finance officials from the Group of Seven industrial economies this week will discuss Trump's tax and regulatory reforms, efforts to combat terrorist financing and a brightening economic picture, a senior U.S. Treasury official said.

U.S. Treasury Secretary Steven Mnuchin will brief his G-7 counterparts on the Trump administration's still-emerging plans to revamp the U.S. tax code with major cuts for businesses, review the Dodd-Frank financial reform law, invest in infrastructure, and ease business regulatory burdens, the official told reporters.

G-7 ministers from Europe, Japan and Canada have expressed hope that the Thursday to Saturday meeting in the Adriatic port city of Bari, Italy will enlighten them on Trump's agenda.

The Treasury official said the G-7 finance ministers and central bank governors were meeting amid improving prospects for global and U.S. growth due in part to optimism over Trump's agenda, and gains in Europe.

"Bottom line, things are starting to look a bit better, but there are some risks out there, including in the sort of ongoing relatively slow productivity growth around the world," the official told Reuters.

He added that there were also risks in some emerging markets that could affect global growth, including China, as well as lingering legacy debt issues in Europe, such as those in Greece.

Some economists, including those from the International Monetary Fund, have expressed concern that Trump's fiscal policies could stoke inflation and bring on faster-than-expected Federal Reserve rate hikes, while new U.S. trade barriers could also slow global growth. But the Treasury official did not identify these as potential economic risks.

(Newsmax wires services contributed to this report).

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President Donald Trump's unexpected termination of FBI Director James Comy reportedly could motivate Republican lawmakers to speed up tax reform to preserve their majority in the House of Representatives.
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2017-59-10
Wednesday, 10 May 2017 01:59 PM
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