(Bloomberg) -- Republican leaders were still pitching their plans to overhaul the health-care system and tax code Wednesday, despite a steady stream of chaos from the White House. But markets weren’t buying it.
U.S. stocks slumped as investors became concerned about the shrinking odds of a tax cut, following reports that President Donald Trump asked former FBI Director James Comey to drop an investigation of former National Security Adviser Michael Flynn. The allegations spurred Republican oversight leaders to demand information from the administration.
“The markets are understandably concerned about whether this latest turmoil will stall movement on the agenda,” said Joe Watkins, a former aide to President George H. W. Bush. “As long as the administration is unable to bring clarity to this situation, this situation will continue to drive breaking news in the media and the agenda will be stalled.”
The Standard & Poor’s 500 Index dropped 1.8 percent, the most since September. The decline contrasts with the rally among U.S. stocks since Trump’s election, buoyed in part by the expectation of corporate tax cuts. The benchmark S&P 500 had reached an all-time high just days earlier. Apple Inc., the U.S. company with the most cash held offshore, fell the most in more than a year. One of the items in the brief tax outline that the White House released last month called for allowing companies to return their offshore earnings to the U.S. at a special “competitive” tax rate.
The latest allegations followed reports that Trump had privately revealed highly classified information to Russian officials and fired Comey amid the bureau’s ongoing investigation into Russian meddling in the 2016 election and possible ties to Trump’s campaign. Those actions have dominated political discussions on Capitol Hill, sidelining the GOP’s legislative agenda -- even as House Republicans are set to kick off hearings this week on their plan to cut tax rates.
The Trump news is depriving the GOP of valuable time for other tasks -- such as funding the government again this fall, raising the debt limit and hammering out health-care legislation in the Senate. Ryan and his leadership team took turns emphasizing tax reform in opening remarks at their weekly press conference Wednesday, yet when they took reporters’ questions, every one the Speaker received was about Trump and Comey.
“We’re going to walk and chew gum at the same time. We’re going to keep doing our jobs, we’re going to keep passing our bills,” House Speaker Paul Ryan told reporters. Senator Chuck Grassley, the chairman of the Judiciary Committee, said items like tax reform remain on track, and that “as long as Congress does its job under the Constitution, nothing is going to stall.”
Still, the legislative agenda is on shaky enough ground as it is, according to Liam Donovan, a lobbyist and former Republican aide.
“Sausage making is hard enough outside the media vortex of President Trump,” Donovan said. “Each blow complicates the political calculations, strains relations between the White House and Congress, diminishes the President’s leverage, and raises the specter of bigger shoes” to drop, he said.
Kevin Brady, chairman of the tax-writing House Ways and Mean Committee, and Orrin Hatch, chairman of the Senate Finance Committee, have also downplayed the consequences of the turmoil on tax legislation. But other Republicans expressed concern about getting sidetracked.
“It is a distraction,” said Senator James Inhofe, an Oklahoma Republican. “We’re trying to get things through.”
Kevin Madden, who served as an aide to former House Speaker John Boehner, said that big legislation is tough to pass even in the best of times.
“Major legislative initiatives are always challenging, even when all of the conditions are working in your favor,” Madden said in an email. President Barack Obama had a 65 percent approval rating with majorities in both houses of Congress when he began his health-care push “and even that was a struggle to get passed,” according to Madden.
“The tax reform that passed in 1986 died a thousand deaths before it ever finally made it through,” Madden said.