by Greg Valliere, AGF Management Ltd.
October 15, 2021
IT’S NOT AN EXAGGERATION to assert that maverick Democratic Sen. Kyrsten Sinema could blow up two infrastructure spending bills and an accompanying package of tax hikes. Everyone talks about Joe Manchin, the Democrats’ other dissenter, but Sinema has emerged as an even greater threat to Joe Biden’s agenda.
MOST DEMOCRATIC LAWMAKERS ARE EXASPERATED: They have complained that Sinema has not detailed what changes she wants, other than a major reduction in the social spending bill from $3.5 trillion to something below $2 trillion. Democrats have complied with that demand from Manchin and Sinema.
BUT IT’S BECOME INCREASINGLY CLEAR that Sinema wants much more. She reportedly is telling allies that she will not accept ANY tax hikes on individuals or corporations. With the Senate tied, 50-50, just one Democratic defector — Manchin or Sinema — could scuttle tax hikes with a “no” vote.
DEMOCRATS SAY PRIVATELY that Manchin will negotiate, and probably will eventually support a bill. He wants a 25% top corporate rate, not the 28% supported by most Democrats, he wants to retain tax breaks for fossil fuel producers, and he wants means testing for some things like the child tax credit. Manchin probably will prevail on these and other changes; Democrats will do anything within reason to bring him on board.
BUT SINEMA IS A MOVING TARGET, changing some demands and refusing to state what, exactly, she wants. She spent most of this week fundraising in Europe.
FIRST THINGS FIRST: Congress needs to raise the debt ceiling and keep the government funded in early December. That could crowd out resolution of the infrastructure bills until late winter, especially as Sinema continues to obstruct.
OUR BOTTOM LINE: There’s still a chance that Democrats could ram the $1 trillion basic infrastructure bill through Congress over the objections of Progressives who want that first bill combined with at least $2 trillion in social spending, and tax hikes. This second bill will either fall apart or get a massive haircut.
PASSAGE OF THIS LEGISLATION is in real jeopardy. We think Bernie Sanders and the left will reluctantly take huge reductions rather than get nothing at all — but even that modest fallback scenario is threatened by the erratic Sinema.
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This post was first published at the AGF Perspectives Blog.
