by Greg Valliere, AGF Management Ltd.
IT MAY BE TOO EARLY for an all-clear signal, but it increasingly appears that a major tax hike could stall in Congress later this year.
THE INTENSITY OF UNANIMOUS REPUBLICAN OPPOSITION to any new taxes — reiterated by Mitch McConnell yesterday — means the White House needs all 50 Democrats to support a tax hike, and that could be an uphill climb.
TOP CONGRESSIONAL LEADERS indicated to President Biden yesterday that a deal is possible on infrastructure — everyone likes highways and bridges — but tax hikes to pay for a second bill, filled with social policy goodies, will be difficult to achieve.
TIMING IS IMPORTANT: Even a scaled-back infrastructure bill will take until summer to pass, perhaps not until late July or after the August break. The second huge spending bill, plus a tax hike, could languish well into the fall or even into 2022, an election year. Most politicians are leery of tax hikes in an election year.
BIDEN AND HIS ALLIES HAVE BEEN STUNG by developments this week, as Republicans compare him to Jimmy Carter, who presided over a litany of disasters in the late 1970s — long gasoline lines, urban unrest, Mideast conflicts, pervasive stagflation, etc.
THESE ALLEGATIONS SEEM EXAGGERATED — it’s not Biden’s fault that corn and lumber prices are skyrocketing — but the sudden bout of anxiety in the stock market may be a signal that the president needs to scale back his ambitious policies.
ONE OF THE MARKET’S BIGGEST CONCERNS has been a massive package of tax hikes, which look less likely as moderate Democrats — led by Sen. Joe Manchin — resist a big tax increases on corporate taxes, capital gains, estates, etc.
BOTTOM LINE: As Republicans and pro-business lobbyists mount a furious assault on higher taxes, it strikes us that the proponents of tax hikes are now playing defense. Maybe they’ll win passage of a modest bill this fall aimed at uber-wealthy individuals and corporations, but the threat of a major tax hike clearly has subsided.
