by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
IT GOES WITHOUT SAYING that President Biden’s Build Back Better legislation is in tatters; he is focused on Ukraine and inflation, with only a fair chance that a few of the BBB proposals could win enactment this summer.
BIDEN AIDES ARE POINTING FINGERS at Joe Manchin, but they concede that the failure of BBB is not just the result of opposition from the West Virginia maverick. Voters are leery of more spending, which they connect with higher inflation, and the 50-50 Senate was always an obstacle. And Biden’s top aides, especially Chief of Staff Ron Klain, get mediocre grades.
BUT THERE WILL BE ONE LAST ATTEMPT this summer to pass some of the Biden initiatives, several top Democratic aides told us this week.
BIDEN WILL FOCUS ON FOUR OBJECTIVES: Lowering the cost of prescription drugs, which has strong voter support in recent polls; funding for new Green projects; child care, probably pre-kindergarten measures; and raising taxes on wealthy Americans and highly profitable corporations.
MANCHIN ONCE SUPPORTED a $1.5 trillion BBB measure, which the White House would eagerly support now. It’s still possible that there could be agreement on the four issues above, but the ten-year price tag would be under $1 trillion.
THERE ARE TWO MAJOR IMPLICATIONS for the markets. First, the era of massive spending is coming to an end, as the deficit falls and Congress moves to the right in this fall’s elections. Second, a major tax package seems doomed, with lots of provisions the markets feared — a capital gains tax hike, a change in the step-up basis, an inheritance tax hike, etc. — now unlikely to pass.
BIDEN NEEDS A STAFF SHAKE-UP OR A BIG LEGISLATIVE VICTORY but he may have to settle for modest bills this summer. The only blockbuster would be dramatic student loan debt relief, which Biden may attempt to enact through executive order. That could be a winner for the Democrats, pleasing progressives but infuriating conservatives.
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KEVIN McCARTHY, IN THE HOT SEAT: Seemingly close to becoming House Speaker after the November elections, McCarthy suddenly is under fire from the right wing. He has left a paper trail on the Jan. 6 riot; his initial reaction was to seek Donald Trump’s ouster, his phone tapes and emails confirm.
McCARTHY HAS OBEDIENTLY KISSED AND MADE UP with Trump, but a suspicion will grow among fiercely conservative Republicans in the House that he can’t be trusted. McCarthy may face a challenge from Rep. Steve Scalise, who could pull the House farther to the right, making Biden’s second two years even more difficult as activists seek to impeach him.
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This post was first published at the AGF Perspectives Blog.
