Thursday’s upcoming House vote on the Senate Budget Resolution could be immortalised in political and economic history if MIT trained US Congressmen, Thomas Massie holds the line on fiscal responsibility and votes “Nay”.
Massie has emerged as the key swing vote that will determine whether the Trump tax plan gets killed on the last week of October, or in the second week of November.
If Congressman Massie votes ‘Yea’ early on –the Budget resolution is expected to pass. Massie was one the 18 GOP holdouts who broke ranks with the party when the House’s version of the Budget resolution was sent to the floor late September.
His vote was perhaps symbolic then because the motion passed 219 to 206.
However, the stakes are much higher this week.
Having been courted by the President, Congressmen Massie is very much inclined to change his vote to a “Yea”. In fact, our model has identified 3 other potential ‘flips’ – Ken Buck (R-Co), Rod Blum (R-IA) and newly confirmed NASA Administrator, Jim Bridenstine (R-Ok).
This would make the running count 223 to 206 – and it appears to be a seemingly easy win for the President’s agenda. The final margin of victory may be even higher as other Republican congressmen who voted against the budget resolution may be dissuaded from voting their conscience rather than face the wrath of a President who is well known to keep, and then settle scores.
However, if Massie were to remain true to his stated convictions and withhold his vote, the calculus becomes extremely interesting.
This can be better explained by first considering the structure of the 18 GOP ‘Nae’ votes.
They can be broken into Deficit Hawks (Walter, Massie and Amash), the Florida Delegation (Mast, Ros-Lehtinen and a ‘No-vote’ from Desantis), and the Medicare-cut opponents from Pennsylvania (Costello, Meehan, Fitzpatrick, Dent and Murphy), the New York – New Jersey delegation who will be opposed to the elimination of the SALT deduction (LoBiondo,Smith, Lance, King and Katko) and other holdouts Buck (R-Co), Conmstock (R-Va) and McKinley (R-WV).
If Massie votes early with the resolution, it will appear that the motion will get passed and with Bridenstine poised to vote ‘Yes’. This is because the Deficit Hawks would have been tamed, just as they were in the Senate, and the motion would require 13 US GOP Congressmen to break ranks and vote in vain against the Budget Resolution, knowing that it will pass.
If you assume a very crude Binomial model, this means that it will require 13 of the 45 GOP congressmen from ‘High’ SALT states such as New York, Pennsylvania, New Jersey and Illinois to vote ‘No’. Chances of that happening – very slim (less than 5%).
However, if Massie holds his line on fiscal responsibility and votes ‘No’ with of the High SALT GOP congressmen still yet to note, it will become clear to other GOP Congressmen that the Senate Bill is ‘ugly’ and a ‘No’ vote is perhaps more politically preferable.
This means that the Hawks still dominate the Congress and would hearken to the fateful day in 2008 when the US Congress voted against the flimsy Bailout plan for Wall Street, sending the Dow to single worst day loss of 777.
It will still take about 12 GOP Congressmen to vote against the bill to defeat it but it would embolden Rand Paul faction to unite with the “High SALT” delegates and vote down the bill.
Chances of that happening dramatically rise to about 50 – 50.
If that were to happen, market observers expect the Dow to drop by about 5 to 10%, or about 700 to 2000 points. My bet is that if the bill is defeated during trading hours then a sharp drop of about 1,000 points is certainly possible as liquidity will evaporate, but the market will probably recover and close 400 to 600 points lower. The biggest impact will be in the Financials with stocks, which have rallied as investors begin to ‘juice’ in the boost in earnings and dividends possible with the Trump tax plan. Stocks like JP Morgan, currently trading at $100 ¾ , may fall by 10% to $90. Speculative investors may fancy buying a couple of hundred out of the money puts at 2 to 3 pennies, knowing full well that the chances of cashing out are very low.
However, if history is made in the House on Thursday, a failure of the Trump Tax plan may just make that investment payoff several hundred times. If not, the can gets kicked down the road to the Senate in November.