by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author:Â Greg Valliere
June 7, 2021
EVERY MAJOR ISSUE IN WASHINGTON â voting reform, infrastructure, taxes, you name it â is now held hostage by Sen. Joe Manchin, the obstructionist West Virginia Democrat who threatened yesterday to derail President Bidenâs agenda. Manchin wants bipartisanship in a world where bipartisanship does not exist.
DEMOCRATS, ESPECIALLY HOUSE LIBERALS, have reacted furiously but they cannot rely on reconciliation or other tactics because theyâre one vote short â Manchinâs, and possibly a vote from moderate Democrat Kyrsten Sinema, who is also opposed to Bidenâs activist agenda.
THIS HAS ENORMOUS IMPLICATIONS:
Infrastructure: Talks have stalled; Biden and Sen. Shelly Moore Capito will try again today. Biden canât get much more than $1 trillion over eight years, which is a non-starter for the populist left, and Republicans will accept only spending for roads, bridges, dams, broadband, water, etc. We think a scaled-back infrastructure bill may emerge later this summer, but the other major Biden goals face an uphill fight.
Social spending: The family aid bill, costing nearly $2 trillion, is on life support. Republicans say the country cannot afford free community college tuition, a permanent child tax credit, new health benefits, etc. Bidenâs aides had planned to move this through reconciliation, but that canât happen with only 48 or 49 Democratic votes; they need all 50 of their members to support it, which would result in a 50-50 tie that would be broken by Kamala Harris.
Taxes: Manchin probably will agree to a modest tax hike on the very wealthy and a hike of a few points on the corporate rate, but a sweeping tax measure looks increasingly unlikely; Republicans adamantly oppose any tax hike.
The deal cut by Janet Yellen this weekend in Europe faces huge obstacles as small countries like Ireland balk; more importantly, itâs a tax treaty, and all treaties require two-thirds approval from the Senate, a very, very high bar to clear. And there will be a furious push-back from conservatives â check out the scathing editorial in this morningâs Wall Street Journal.
BIDEN HEADS FOR EUROPE later this week with major headaches â his domestic vaccine goals havenât been met; Russian cyberattacks are out of control; Yellen said, indiscreetly, that inflation may exceed 3% for a while; and then thereâs Manchin â whose refusal to support voting reform has infuriated the party.
THERE ARE COMMON GOALS BETWEEN THE U.S. and Western Europe, confirmed once again by the poignant D-day ceremony yesterday on the 77th anniversary of the epic Normandy invasion. But European leaders view the U.S. more warily after the last four years â and surely they have noted the re-emergence of Donald Trump, and Bidenâs inability to get his agenda enacted.
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