A Major Omission in the Ways and Means Proposal; California Vote Today

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September 14, 2021

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A Major Omission in the Ways and Means Proposal;
California Votes Today
September 14, 2021
THERE WAS SOMETHING FOR EVERYONE TO DISLIKE in the House Ways and Means Committee draft proposal on tax hikes. This morning’s Wall Street Journal editorial portrayed it as a Socialist revenue grab, while critics on the left slammed the proposal as timid and generous to the rich.

THUS THE INITIAL PROPOSAL from Chairman Richard Neal will be changed; much is still up in the air, although one very important signal for investors is that the effective date for a capital gains hike was set as yesterday — Sept. 13. The date when the committee introduces a bill often sticks and this one might as well.

BUT LITTLE ELSE MAY STICK, as virtually all of the Ways and Means proposals will now enter the bazaar for wheeling and dealing. At the top of the list is a major omission — no expansion of a more generous State and Local Tax break (SALT) — which is considered mandatory by at least a dozen House Democrats from wealthy states.

ANY SALT LIBERALIZATION would infuriate the progressives, who were angry yesterday that the tax hikes weren’t more aggressive against the rich on issues like capital gains rates and estate taxes.

THE LEFT’S BIGGER PRIORITY is the staggering cradle-to-grave spending package that may be unveiled today — trillions for pre-school education, housing aid and sweeping new health benefits, just to cite a few of their priorities.

THE SUMMARY OF TAX PROPOSALS in this morning’s Wall Street Journal by the always-excellent Richard Rubin describes how difficult it will be for Democrats to fully pay for this bill; as we wrote yesterday, the Ways and Means draft relies heavily on vague “dynamic scoring,” tougher IRS enforcement, and aggressive drug price controls.

OUR BOTTOM LINE is that wealthy Americans almost certainly will take a hit, and big profitable corporations also will have a higher tax bill. Everything else is up for grabs, especially when radical Sen. Ron Wyden’s Senate Finance Committee considers adding provisions later this fall that would affect Wall Street, such as a stock buyback tax.

THE WAYS AND MEANS PROPOSAL, skillfully pieced together by Neal, is something that business can reluctantly live with; it could have been worse. Wyden’s Senate proposal will veer more sharply to the left, which raises the likelihood that moderate Democrats in both houses will reject it.

THE TWO HOUSES may need several weeks to iron out a compromise bill, which may wind up as more market-unfriendly than the Ways and Means version, which was just the first chapter in a long narrative.
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THE CALIFORNIA RECALL VOTE: Gavin Newsom won’t get recalled; President Biden wouldn’t be campaigning in the Golden State if the outcome was in doubt — after his disastrous summer, Biden can claim a victory if Newsom wins comfortably, as we expect. Voters in California overwhelmingly favor tough mask and vaccine mandates, which Biden will claim as a vindication of his policies.

REPUBLICAN ACTIVISTS ARE PREPARED to blame voter fraud if they lose, continuing a trend that will turn off voters — ironically, mostly Republican — who will become disillusioned and less likely to vote if they think elections are rigged. Republicans lost both Georgia Senate races last January after Donald Trump alleged that there would be fraud.

IF NEWSOM WINS COMFORTABLY, you can be certain that he will begin plotting a run for higher office later this decade . . .