Trump to address Dodd-Frank, tax reform before ACA
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In our view, there are five main pillars of "Trumponomics" — one, reduce corporate and household taxes; two, renegotiate international trade deals; three, dismantle Dodd-Frank; four, repeal and replace ObamaCare; and five, rebuild the nation's infrastructure.

We are including border security in this last category, which covers the infamous wall. Below is the likely course of action by the incoming administration.

President-elect Trump cannot achieve all five of the aforementioned goals at once, certainly not with any gusto. Rather, he will have to prioritize what he wants to tackle in his first 100 days.

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While some incoming officials have stated that the repeal and replacement of ACA will be the Administration's day-one priority, we have a somewhat different view.

Our best guess is that House and Senate leadership will focus on cutting taxes first, because this is the lowest-hanging fruit, meaning that House Speaker Ryan and Senate Majority leader McConnell can shepherd a bill through Congress reasonably quickly.

For example, President George W. Bush signed his tax cut package into effect in June 2001, just five months after taking office. Moreover, the House has already passed one version of the Ryan plan.

Furthermore, individual tax reform can be separated from corporate tax reform, because this will make passage easier and quicker. Then, the latter can be tied into infrastructure spending, but more on this later.

The focus on tax cuts does not mean the administration will not be working on its other initiatives; it certainly will. The dismantling of Dodd-Frank is arguably easier than tackling the Affordable Care Act (ACA) because many of the rules in the former have yet to be codified.

Additionally, there remains significant leeway in terms of how the various regulatory bodies will interpret the current law. After individual taxes have been cut, and the slow, arduous process of watering down Dodd-Frank has begun, the administration will tackle the second half of tax reform — reducing corporate taxes.

At this point, the economy should already have seen a lift from the reduction in household marginal income tax rates, giving the administration added political capital.

Corporate tax reform will include an initiative to address the roughly $1 to $2 trillion in profits held overseas by U.S. companies. To be sure, these profits would be repatriated back to the U.S. at a reduced rate.

In turn, these funds, which could total anywhere between $100 to $200 billion, could be used by state and local governments for infrastructure projects. Essentially, the proceeds from repatriation would be used as tax credits/federal subsidies to help finance infrastructure spending, similar to what was done under President Obama with "Build America Bonds".

Since these would be municipal securities, they would not count against the federal debt.

Essentially, the first half of the year will likely see individual tax reform and some Dodd-Frank rollback, and the second half of the year will likely see corporate tax reform and infrastructure spending.

The latter will help maintain the economy's glide path in 2018 as the demand-side stimulus of the tax cuts abates.

Finally, what about ACA and the trade deals? With respect to the former, given its complexity and full implementation (which is not the case with Dodd-Frank), it is going to take time for the Republicans to craft a plan that gets some bipartisan support, which would be necessary to avoid the negative optics and rancor that accompanied the ACA party-line vote.

As long as the administration has made incremental progress on improving ACA by the 2018 midterm elections, this should suffice as President Trump could then focus entirely on healthcare issues in the second half of his first term. A strong economy will help him in this regard.

Regarding trade renegotiations, our best guess is that these will occur under the radar and only be announced after the fact. For example, NAFTA may simply be updated and refreshed and with a new name attached. Stay tuned.

 

Joseph LaVorgna is the chief U.S. economist for Deutsche Bank Securities. LaVorgna is a regular guest on CNBC. 


 

The views expressed by contributors are their own and not the views of The Hill.