Goldman Sachs (GS) - Get Report analysts have a prediction that may help nervous investors sleep easier: tax reform is still likelier than not to happen, regardless of what happens with health care reform.
Wall Street has become increasingly shaky in recent days on anxieties over the outcome of the House Republicans' plan to repeal and replace Obamacare. Stocks fell on Thursday after Republican leadership delayed a vote on the American Health Care Act, a bill put forth by the GOP. But Goldman analyst Alec Phillips in a note late Wednesday held investors need not worry -- tax cuts will probably still happen anyway.
"Passage of the health bill is not what is important for tax reform," Phillips wrote. "Instead, the most important issue for financial markets is for Congress to be finished with this bill one way or another so that it can move forward with tax reform, which is likely to have a greater effect on corporate earnings and the real economy."
Some on Wall Street see the health care vote as a referendum on Congress' ability to enact its broader policy agenda, but Goldman notes that is to overlook some important nuances.
If the AHCA gets through the House, it faces an uphill battle in the Senate, as Republicans there have expressed serious concerns about the bill. Thursday's vote is just the start of what could be a weeks or even months-long process on health care.
Moreover, the divisions among Republicans in the tax debate are different from those involved in health care. The border adjustment tax, a measure that taxes imports and exempts exports and is part of the House GOP's tax blueprint, has become a matter of hot contention on the Hill. So has interest deductibility. But Goldman says they are obstacles that can be overcome.
"The trouble that congressional Republicans face in achieving majority support for the health bill is a reminder of how difficult it might be to reach near-unanimous Republican support for major tax reforms, like border adjustment," Phillips wrote. "However, there is likely to be much broader support for tax cuts than there is for the health legislation."
The Goldman analysts gave the AHCA about a 50% chance of passing the House on Thursday. As for tax reform, they say the odds of passing tax legislation by early 2018 as around 80%, even suggesting it could be enacted in the fourth quarter of 2017.
Goldman isn't the only party to pick up on this idea that health care reform might not matter for taxes, even if it fails.
Politico's Ben White in his Morning Money newsletter on Wednesday suggested that a failure on the health care vote could actually incentivize the GOP to accelerate the rest of President Trump's agenda, including tax cuts, in order to get back on offense and deliver a win.
"This depends on Republicans simply pulling the plug on ACA repeal in the face of failure. If they instead attempt to go back into the lab and cook up something else that can appeal to both hardline conservatives and nervous moderates then the whole timetable could get pushed back more and Wall Street could tank even harder," White wrote.
Investor's Business Daily's Jed Graham also picked up the notion that a quick health care rejection could spur a move on taxes. "A quick failure of Obamacare repeal might make tax cuts a 2017 story," he wrote in a column this week.
Trump himself appears eager to get through health care in order to move onto other items, including taxes.
"We want a very big tax cut," he said at a rally in Louisville, Kentucky this week. "But we cannot do that until we keep our promise to repeal and replace the disaster known as Obamacare."
Politico's Shane Goldmacher observed the president treats talking about health care like "the vegetables of his agenda." And he's ready for dessert, as is Wall Street.
-- Updated with stock reaction to vote postponement.