Democrats, Stunned, Survey the Damage

by Greg Valliere, AGF Management Ltd.

Insights and Market Perspectives

Author: 8

October 22, 2021

Democrats, Stunned, Survey the Damage
October 22, 2021
WE TALKED WITH DEMOCRATS YESTERDAY who are stunned by the party’s capitulation on social spending and tax hikes. They like Joe Biden but they blame Joe Biden.

BIDEN INDICATED LAST NIGHT that he might support some reforms of filibuster rules that have thwarted the Democrats’ agenda. But it’s too late — filibuster changes couldn’t be passed in time to affect the tax and spending debate.

ANGRY VOTERS WANT ACTION: Polls show strong support among Democrats and moderates for the “Build Back Better” agenda; voters increasingly believe Biden has been too passive on this issue, as well as voting reform.

PARTY LEADERS WORRY that Terry McAuliffe may lose his gubernatorial race in Virginia, where polls show a tie after McAuliffe led fairly comfortably during the summer. Even a strong finish by GOP challenger Glenn Youngkin would send a message to the reeling Democrats.

BIDEN INSISTS THAT CONGRESS will pass his signature social spending bill, with an agreement in principle coming as early as this weekend. But any deal faces a harsh scoring from the Congressional Budget Office, and charges of gimmickry because many new spending proposals would last for only a year or two.

THE BIG STORY FOR THE MARKETS is the apparent abandonment of any hike in the top corporate rate; weeks ago it seemed virtually certain that the rate would rise to 25% or 26%, up from 21% now. Desperate for revenues, Democrats may try to enact a minimum corporate rate and curbs on stock buybacks, but there’s no unanimity on these fall-back provisions in a Senate where unanimity is required.

SOME NEW TAXES, NOT TOUCHING RATES, might satisfy Kyrsten Sinema, who has become the most dominant member of Congress. She apparently will prevail with her demand of no new tax rate increases for corporations, individuals, and capital gains.

FURIOUS DEMOCRATS ARE WEIGHING higher taxes on capital gains that haven’t been cashed in, and they are eyeing other provisions that would increase taxes on the ultra-wealthy. But no hike in capital gains taxes and other provisions would be a humiliation for the Democrats.

BIDEN CAN STILL CLAIM A MAJOR VICTORY because the basic infrastructure bill — for highways, dams, bridges, wi-fi, clean water, etc. — would pass along with the scaled-back social spending measure. But Wall Street could also claim a major victory, as investors dodge a bullet. This bill could have been much, much worse for the markets.


The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit AGF.com.

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This post was first published at the AGF Perspectives Blog.

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