Just like in business, in the world of politics, having clout does matter. People are less interested in aligning themselves with those who lose. In fact, it's why Donald Trump has made a career out of never admitting defeat even when he's clearly lost a battle. Case in point: the healthcare battles of early 2017.

House Republicans on Friday pulled their bill to repeal and replace the Affordable Care Act, generally referred to as Obamacare, just before a vote that had been demand by the president himself Trump. The reason? Roughly 34 Republicans with disparate political views had indiciated that they would vote against the plan, according to an NBC News count. The GOP decided to pull the bill rather than risk egg on their face.

But what does Trump's healthcare loss actually mean for his agenda? And, more importantly, for small businesses across America?

Tax, free trade, and immigration reform are just some of many hot button issues. With the majority in Congress being Republicans, the smart money would have said that most of Trump's plans would be likely to pass. However, that's before healthcare, where Trump threw a good deal of his weight behind the passage of a bill that wasn't his own, then pretended he hadn't when it was clear he'd be on the losing side.

Tax Reform: an Easy Win?

President Trump had indicated part of his agenda would be slashing taxes as well as simplifying the tax code so that today's seven brackets would be replaced by three. Under his proposal, those who make the most would pay a maximum of 33% of their taxable income, compared with the current top rate of nearly 40%. Trump also would like to lower corporate taxes to a 15% rate across the board, including S-corporations and for LLCs. Trump has also indicated that he would like to let business owners who have been holding cash overseas to repatriate those earnings, subject to a 10% one-time tax. Finally, he had indicated a willingness to close the inversion loopholes, which help companies by letting them bank funds overseas in order to defer taxable income. Under Trump's ideal scenario, corporations would have to pay taxes on income at the time that money is earned.

"There is fairly broad bipartisan support for the idea of lowering the corporate income tax rate and getting rid of most of the loopholes," says Dean Baker, co-director of the Center for Economic and Policy Research. Baker believes that all of the loopholes have lobbyists willing to argue against closing any of them. He envisions a rather likely scenario in which partial tax reform is passed: tax rates are lowered, but only some minor loopholes wind up getting addressed. There's a likelihood that this will wind up helping larger multinationals far more than the typical small business.

However, will the House go along with Trump on tax reform? It seems relatively likely that yes, the two sides will find a way to work together. "this does make tax reform more difficult," said House Speaker Paul Ryan on Friday, referring to the healthcare loss. "But it does not, in any way, make it impossible. We will proceed with tax reform." So Ryan says, but it's important to note what happened on Friday: Republicans in Congress indicated that they would not vote for something they didn't feel like voting for just because Trump wanted them to.

The Tax Reform Coalition

As a result of not being able to win over Republicans on the far right, there's a question of if Trump will be able to threaten them by bypassing them in future legislative fights. That would include tax reform. In fact, the Sunday after Trump's healthcare loss, Reince Preibus, the White House chief of staff, indicated that Trump might aim to build a coalition including moderate Democrats. The result could be a different final tax reform bill than we would otherwise end up with.

Why would Trump "risk" building a broader coalition with tax reform? Ultimately, Trump's healthcare loss means that getting tax reform done isn't a nice-to-have; it's essential. Explaining away a loss on tax reform will be close to impossible given the healthcare loss. Building a broader coalition might be necessary given how much infighting we saw amongst the House Republicans leading up to Trump's healthcare loss. There could still be a divide between the House and the Senate amongst their tax reform ideas. For example, Speaker Ryan wants a border-adjustable tax, or BAT, which would generate revenue of $1 trillion over a 10-year period, in order to make up for the revenue lost by cutting tax rates to close to 20%. Senate Republicans are very much against Ryan's proposal; some industries particularly affected by the BAT are set to lobby against Ryan's ideas as well.

Ultimately, the smart money is on small businesses getting some form of tax relief despite Trump's healthcare loss. However, Trump will need to show he's an actual dealmaker by building a coalition rather than risk tax reform, too, go up in flames.

Published on: Mar 27, 2017