Here Comes the Hard Part — Senate Begins Debate on Covid Aid Bill

by Greg Valliere, AGF Management Ltd.

FIRST OF ALL, there’s a legitimate question about the $1.9 trillion covid aid bill: does the country really need to spend that much money? We argued during February — as the economy recovered and bond yields surged — that something closer to $1 trillion would be plenty.

AS THE SENATE BEGINS DEBATE this week, even some Democrats have reservations about the level of spending, an issue that will get louder as controversy subsides over a minimum wage hike; that fight that will have to wait until later this year.

WITH MOST STATES reporting surprisingly solid revenues, some Senate Democrats are asking whether Congress should spend $280 billion on aid to state and local governments? Some Senators think that money should go to broadband build-outs.

“THE MOOD IS TO SCALE BACK,” a Congressional aide told us yesterday; the $300 weekly unemployment benefits may stay at that level instead of rising to $400. And there may be an increased focus on who will be eligible for $1,400 federal checks. If the bill is scaled back, or targeted differently, it might win a couple of GOP supporters.

BUT PRESIDENT BIDEN IS FOCUSED almost entirely on keeping all 50 Democrats on board, that’s the key. Biden met with moderates yesterday and will virtually attend party events today and tomorrow. With a minimum wage hike off the table, Democrats expect three moderates — Sens. Joe Manchin, Kyrsten Sinema and Jon Tester — to vote for the bill, enough for it to prevail in a 50-50 tie.

BOTTOM LINE: This is a bloated bill, even by Washington standards, but Biden’s poll numbers continue to rise and nearly a third of Republican voters say they support the measure. Passage by mid-March still appears likely, with a price tag of close to $1.9 trillion, even though some details may change.

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POPULISTS WANT MORE TAXES: Elizabeth Warren generated tons of publicity yesterday with her Ultra-Millionaire Tax Act. A Wall Street transaction tax proposal will be coming soon. We’re not going to spend much time focusing on these proposals, because they have no chance of enactment.

WARREN AND HER ALLIES have solid public support for more modest tax hikes on corporations and wealthy individuals, and those proposals may pass by fall. But a wealth tax — difficult to enforce, easy to avoid — will fail. Every Republican scoffs at Warren’s plan, as do many Democrats; even liberal Treasury Secretary Janet Yellen is opposed.

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This post was first published at the AGF Perspectives Blog.