Trump’s agenda gets a reality check

The debate over the Republicans’ health care bill last week is the clearest indication yet that implementing President Donald Trump’s legislative agenda won’t be as easy as he may have hoped. Although there is no procedural reason why cutting taxes depends on health care reform, the fact that the latter is already proving so difficult doesn’t bode well for the Republicans’ ability to work together on future legislation. We still expect a package of tax cuts to be passed early next year, but the risk of a further delay to Trump’s fiscal stimulus is starting to rise. Meanwhile, despite fears over how the economy will weather rising interest rates in the face of high levels of debt, for now there appears to be little cause for concern. Relative to disposable incomes, household debt is at its lowest level since 2002, while corporate balance sheets also appear to be in reasonable shape. The prospect of a large fiscal stimulus could, however, eventually push the public debt burden much higher.