by Greg Valliere, AGF Management Ltd.
October 29, 2021
YESTERDAY’S CELEBRATION of an infrastructure “framework” was bizarre. President Biden said a tax and spending bill is close to passage, but it is not. Nancy Pelosi knows this; the House has adjourned for the weekend because she doesn’t have the votes for a deal.
WE STILL THINK SOMETHING PROBABLY WILL PASS by Thanksgiving, but there are still a dozen tax and spending issues that haven’t been resolved. Most importantly, House progressives won’t vote for anything without an iron-clad assurance that Joe Manchin and Kyrsten Sinema will vote for the cradle-to-grave social spending bill. What a mess.
OUR SENSE AFTER READING ALL THE SUMMARIES is that this obviously is a dramatic change in the role of government, and for tax law. But the longer this legislation languishes, the more it will attract critics who want to make changes.
ONE SIMPLE TRUTH CAN’T BE REVERSED: Similar gigantic expansions of government under Franklin Roosevelt and Lyndon Johnson were achieved because both presidents had enormous majorities in the House and Senate. Biden has a three seat House margin, and the Senate is tied.
WITH MARGINS THIS THIN, everyone who has a complaint or a request will get a platform in this process, as fierce negotiations resume next week to kill or add provisions.
THERE’S STILL NO AGREEMENT on Medicare care benefits, paid leave, the state and local tax break, or a last-minute immigration reform proposal. Much of the legislative language hasn’t even been written; tax changes are far from certain as the Ways and Means Committee re-writes its proposal.
BIDEN CAN TELL PARTICIPANTS at the Glasgow climate summit that the U.S. will spend billions more on Green programs; that’s a major victory for him in the “framework” announced yesterday. But this dysfunctional negotiation process — with many days or even weeks to go — has damaged Biden’s reputation as a skilled negotiator, and a verdict may come on Tuesday.
WHAT APPEARED TO BE AN EASY WIN by Terry McAuliffe in Virginia’s gubernatorial race now looks like a possible upset for the Republicans. A new poll from Fox — which has good polls despite the network’s reputation as a Trump ally — shows that McAuliffe now trails by 8 points.
A McAULIFFE LOSS would ratchet up anxiety among Democrats, most of whom concede that the GOP is likely to win the House — and possibly the Senate — next year. So the House progressives, who want to tax and spend more, privately view the next few weeks as their last opportunity for years to enact their agenda.
COMPLICATING EVERYTHING is the growing fear of stagflation; as we expected, yesterday’s GDP report was soft. The Federal Reserve probably will announce details next week on its tapering of asset purchases; the central bankers have to address inflation.
WE STILL THINK THERE’S A 40% CHANCE that this massive infrastructure package could crash and burn. So the fiscal policy uncertainty will persist, as negotiations drag on — and on and on — over a tax and spending bill that hardly warranted a premature celebration yesterday.
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This post was first published at the AGF Perspectives Blog.
