by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author: 8
October 21, 2021
Kyrsten Sinema Says No New Taxes —
And Democrats Scramble
October 21, 2021
AS WE WROTE LAST WEEK, no one on Capitol Hill can figure out what maverick Sen. Kyrsten Sinema wants, but it’s becoming clear what she doesn’t want: new taxes. This has forced Democrats to scramble for revenues to pay for the social spending bill.
IT’S POSSIBLE that there will be virtually no tax hikes in the measure. Sinema is opposed to tax increases on individuals, corporations and capital gains, and she has the power to prevail in the 50-50 Senate.
THE IDEA OF NO SIGNIFICANT RATE HIKES could be a positive for the stock market, which has worried about the impact of a rate increase from 21% now to 25% on corporations. But this might not be a victory, since other provisions — many controversial — may have to be considered to make up the revenue gap.
WHAT DIFFERENT TAXES COULD MAKE IT IN THE BILL? Among the options include targeting hundreds of billionaires who don’t pay taxes on their unrealized gains. Party leaders are also discussing taxing stock buybacks, installing a minimum corporate tax, increasing IRS enforcement, etc. Assuming strong revenues via “dynamic scoring” is a given.
PROGRESSIVES IN A FUNK: This has been a terrible week for progressives, as the bill’s price tag continues to plunge. The progressive agenda — including packing the Supreme Court, killing the filibuster, and imposing a wealth tax — has failed to gain traction.
FOCUS ON THE MATH: The fallback for the left, as its policy goals teeter, is to adopt virtually all of its favorite provisions — but only for a year or two, not ten years as initially planned. That would free up revenue, but this gimmicky strategy depends on the House staying under Democratic control after the 2022 elections, which looks unlikely.
BOTTOM LINE: We still think an agreement in principle could be announced in the next few days, but ironing out the details will be a huge obstacle. Much depends on what Sinema favors and opposes — one maverick has the power shake up the entire narrative.
IN ADDITION TO OPPOSING TAX HIKES, Sinema objects to aggressive Medicare drug price controls — still another issue yet to be resolved, along with details on state and local tax (SALT) relief, which almost certainly will be included in the final version — still another insult to the left.
DESPITE ASSURANCES FROM CHUCK SCHUMER AND NANCY PELOSI that a deal will be finished soon, this will drag into November. As party in-fighting intensifies, there will be a focus on Joe Manchin, the other maverick, who has been ardently wooed by Republicans to join the GOP. It’s not out of the question.
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This post was first published at the AGF Perspectives Blog.
