'The death of tax reform'?: Trump's tax plan is about to face a huge test in the Senate

AP

President Donald Trump and Senate Majority Leader Mitch McConnell

• The Senate will consider a budget resolution this week.
• Passing a resolution is key to getting tax reform passed.
• Republican Sen. Thad Cochran of Mississippi will not be in Washington for the vote this week, leaving the GOP with a thin margin of error to pass the resolution.

Republican leaders will look this week to take a first step in an arduous task of overhauling the US tax code - passing a budget resolution. While the House already pushed through its budget, the Senate has plans to consider its version this week.

Passing a budget is critical to the eventual passage of tax reform in the Senate, as it will allow the GOP to open up the process known as budget reconciliation. Reconciliation allows a bill to pass through the Senate without being subject to a filibuster, a critical step since Republicans hold just 52 seats in the chamber.

While every Republican member of the Senate has expressed a desire pass a tax reform package, it is no guarantee the Senate budget resolution will make it through. Several GOP senators have expressed concerns over the proposed increase in defense spending and how the budget could affect the federal deficit.

Isaac Boltansky, an analyst at research firm Compass Point, signaled that the vote could come down to two members.

"The GOP can only afford to lose two of its 52 members and as of Sunday evening at least two" - Sens. John McCain and Rand Paul - "appeared uncommitted," Boltansky wrote in a note to clients Monday. Sen. Susan Collins of Maine, he added, "signaled her support for the budget resolution on Sunday morning."

But the math could become more complicated by the status of Sen. Thad Cochran of Mississippi, whose office said he would not return to Washington this week for the vote. Cochran underwent a medical procedure weeks ago.

"He will continue his recuperation at home in Mississippi," a statement from Cochran's office said. "The Senator has expressed his intention to return to the Senate when his health permits, and to fulfill his commitment and duties to the people of his state."

According to Politico, some Republicans are concerned Cochran's health could keep him away through the end of the year, which is when Trump has expressed a desire to sign a tax bill into law.

If the budget resolution does not pass, it will be a serious blow to that timeline. Renegotiating the resolution, passing it, and then working out any differences with the House to get the resolution to Trump's desk would substantially chip away at the time the GOP has remaining.

Brian Gardner, director of Washington research at financial research firm Keefe, Bruyette & Woods, said he expects the budget to pass by a narrow margin. But he said that if it were to fail, it would be a serious setback for the tax reform effort.

"We expect the budget resolution will pass but with no room to spare," Gardner wrote in a note to clients Monday. "Failure to pass the budget resolution would, in our view, be seen by many as the death of tax reform. That view might be premature, but we expect that will be the markets' reaction if the budget resolution fails."

Debate on the resolution is expected to open on Tuesday, with a vote on Wednesday or Thursday.

"We continue to believe that the budget resolution is likely to clear the Senate this week, but the situation remains fluid," the analysts wrote. "We maintain our 60% odds for a tax package in this Congress, but we caution that those odds are biased lower and will fall off a cliff if lawmakers fail to clear the budget resolution this month or release the legislative text by mid-November."