So the only way big deficits could drive up rates would be if they gave a big boost to demand, threatening to overheat the economy, and causing the Fed to raise rates to avert that overheating.

Which means that the market impact of deficits depends on how much we think these deficits will raise demand. And the answer is, probably not all that much – if you think of the tax bill as a form of demand stimulus, it’s a very ineffective one, and the piece of the deficit that comes from gaming incompetent legislation will be especially ineffective.

For one thing, the bulk of the gains will go to the rich, who probably spend less of a marginal dollar. And this will be especially true for rich people receiving what they suspect will be transient income gains.

So, imagine yourself as a wealthy, liquid taxpayer experiencing a surge in after-tax income because your accountant has found clever ways to exploit the idiocy of new legislation. It will be fun and lucrative, but you’d have to suspect that the fun will end eventually – that even this GOP, with this leadership, will eventually close the most outrageous loopholes. So we might see big deficits that have relatively little real effect, because the winners from system-gaming save most of their gains.

Notice, by the way, that this isn’t the conclusion I’d like to reach on political grounds. Given how terrible this bill is, I’d like to claim that it will lead to immediate market disaster. But I try not to engage in motivated reasoning (although sometimes I give in to temptation, then apologize); and I just don’t see a market disaster even if we see the expected epidemic of tax avoidance.

What about the politics? OK, here I don’t have a clear model, so this is much more speculative. Still, what happens if the deficit balloons, and it’s clear that gaming of the tax bill is a major factor?

We know what Ryan and McConnell will try to do: they’ll try to use deficits as an excuse to cut safety-net programs. But will they be able to get away with this with the memory of the tax scam still fresh in everyone’s memory? I’m pretty cynical about centrists and the propensity of the media to be taken in by charlatans, but I think this would probably be a bait and switch too far.