by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
November 10, 2021
Congress Faces Four Big Issues in the Next Month
November 10, 2021
HARD TO BELIEVE that Christmas is only a few weeks away — not enough time, it seems, for Congress to resolve four enormous issues. When lawmakers return from this week’s recess, with the Thanksgiving break scheduled a week later, here are the Big Four issues they will confront:
1. Defense spending: In some respects, this will be the easiest of the four bills to pass; more spending for the Pentagon is popular — it’s largely about jobs and votes back home. And just to make the measure more appealing, Congress may attach a stalled “competitiveness” bill to provide aid to U.S. manufacturers who compete with China.
2. Government appropriations: A catch-all budget continuing resolution (CR) was passed just before the fiscal year began on Oct. 1, with the funding now set to expire on Dec. 3. Failure to act by then could lead to a government shut-down, which neither party wants.
Our best guess is that another CR will be needed, lasting almost literally until
Christmas Eve. Still another CR may be required then, extending the funding fight — and a threat of a government shutdown — into 2022.
3. The social spending bill: Bold predictions by Sen. Chuck Schumer and other Democrats claimed that the $1.75 trillion package could win enactment by Thanksgiving — but reality has set in. It may take weeks to iron out differences on the massive cradle-to-grave measure.
As the Wall Street Journal reports this morning, there are several disputes between the House and Senate, including a renewed state and local tax break, paid leave, tax incentives for the purchase of electric vehicles made with union labor, and a complicated liberalization of immigration laws.
The latter issue may get booted by the Senate parliamentarian because it’s not germane to a budget reconciliation process. And the Congressional Budget Office could conclude that revenue assumptions are too generous and spending projections are too low.
We think a social spending bill will pass eventually, but that’s a low-confidence prediction because Sen. Joe Manchin could singlehandedly kill the entire measure. In any event, enactment of this massive package is unlikely anytime soon; the pressure to act won’t intensify until voters realize that the extremely popular child tax credit could expire in early 2022 if Congress doesn’t act.
4. Debt ceiling extension: No one knows for sure when the U.S. Treasury will run out of money; a surge in tax revenues in recent months — thanks largely to the soaring stock market — could keep the government afloat into 2022. But the debt authority could end in early December, and the media will howl about a possible U.S. default.
A default is extremely unlikely. If there’s no extension of the debt ceiling, one of three options will emerge: first, extend the deadline, kicking the can down the road until late winter. Second, an emergency intrusion by the Federal Reserve, backing U.S. debt.
Third and most likely would be the grudging acceptance by Schumer of a debt
ceiling increase via a budget reconciliation maneuver that would require all 50 Democrats to vote for it. Mitch McConnell wants only Democrats’ fingerprints on this, and he’s likely to prevail.
ALL OF THIS WILL TAKE TIME, and it will be complicated by the furious assault from conservative Republicans aimed at the 13 moderates in their own party who voted last weekend for the infrastructure bill.
PEOPLE OFTEN ASK US why there isn’t more bipartisanship in Washington, but we have seen once again that apostates in either party are vilified. Republicans who voted for the infrastructure bill have been excoriated by hard-line GOP colleagues, who are threating to punish members by taking away their committee assignments. December will be nasty.
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This post was first published at the AGF Perspectives Blog.