by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author: 8
October 20, 2021
Getting Closer to a Deal — But the Details Will be Daunting
October 20, 2021
THE DEVIL’S IN THE DETAILS: Amid all the breathless hype — Manchin and Bernie Sanders are meeting !! — final agreement on a scaled-back social spending bill is still several days away.
THE BRAWLING DEMOCRATS have agreed that the package will cost $2 trillion or less, quite a change from their $3.5 trillion target, but agreement on a final price tag is only part of the narrative. Three potential snags will persist:
1. How to pay for it: Negotiations have focused on spending targets, not revenues. Lots of smoke and mirrors on this — “dynamic scoring,” assumptions of a more aggressive IRS, etc. And an agreement on the tax hike details is many days away.
2. Length of programs: Progressives don’t want to fully abandon any of their proposals, so they will simply cut the duration — instead of ten years, why not make the key provisions last for two or three years? That would cut the overall price tag, and once these programs are enacted, they could be hard to kill.
3. What gets whacked: The Democrats will have to sharply curtail — and consider means testing — for free community college, a clean electric program, paid leave, Medicare expansion for dental, vision and hearing services, etc. We reiterate that most programs face major reductions, not extinction.
BOTTOM LINE: An “agreement in principle” is possible within a few days, but the complete details could be weeks away as lawmakers sift through thousands of pages of the legislation. We still anticipate passage of a basic infrastructure bill, costing $1 trillion or a bit more, and we still think the social spending bill will get a wicked haircut.
ONE HUGE UNANSWERED QUESTION: With the Democrats committed to using the reconciliation process to win enactment of a social spending bill, why not include an increase of the debt ceiling? It’s the easiest approach — by far — to avoiding a default crisis, yet the Democrats apparently would prefer to bash Republicans for provoking a debt crisis in early December.
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DONALD TRUMP, ALL CLASS: Mocking Colin Powell as a disloyal Republican, Trump complained yesterday about the “Fake News Media’s” favorable treatment of the deceased general. “Hope that happens to me someday. He was a classic RINO, if even that, always being the first to attack other Republicans. He made plenty of mistakes, but anyway, may he rest in peace!”
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This post was first published at the AGF Perspectives Blog.
