by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author: Greg Valliere
February 3, 2021
DESPITE A CORDIAL MEETING EARLIER THIS WEEK, there’s virtually no chance of a compromise between the two parties on the size of a pandemic relief bill. Democrats will not back down — they will “go big,” and it looks like they have the votes.
WE TALKED WITH SOURCES on Capitol Hill yesterday who are convinced that the Democrats’ leadership has no interest in bipartisanship. They will ram through a bill using the budget reconciliation process, just as Republicans used that tactic against them in recent years.
IT’S POSSIBLE THAT PRESIDENT BIDEN’S $1.9 trillion package will get trimmed back a little; he may agree to lower income thresholds for government checks, which presently cuts off at a very generous $150,000 per couple. But Biden will hold firm on the dollar amount of the checks — $1,400 in his bill.
AND IT’S POSSIBLE THAT A HIKE IN THE MINIMUM WAGE to $15 per hour could be dropped or reduced. The Senate parliamentarian will decide whether a minimum wage provision will be germane in a budget reconciliation bill.
THE BIGGEST DEVELOPMENT YESTERDAY was the announcement by moderate Sen. Joe Manchin (D-W.Va.) that he will agree to the first step of this process — the passage of a budget resolution within a few days, leading to reconciliation.
MANCHIN MAY HAVE ISSUES later in the process — with the minimum wage, the size of checks, and any business tax hikes — but for now he’s on board, which would give the Democrats a 50-50 tie that would be broken by Kamala Harris.
THREE MAJOR CONCLUSIONS —
First, the $618 billion GOP proposal is totally dead; it doesn’t include things like aid to state and local governments, which the Democrats will demand.
Second, even if Biden agrees to soften his $1.9 trillion target in an effort to show bipartisanship, a final bill costing at least $1.5 trillion is virtually certain.
Third, emboldened Democrats — including new Senate Budget Committee Chairman Bernie Sanders — may seek even more than $1.9 trillion. He wants to shore up pension funds, which we think would have little chance with the parliamentarian or with Manchin.
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A VERY IMPORTANT DAY FOR REPUBLICANS: The House GOP Caucus will meet in private today to consider the fate of Rep. Marjorie Taylor Greene, who has been described by Mitch McConnell as a “cancer” in the party. And they will consider the fate of Rep. Liz Cheney, the third-ranking Republican in the House, who supported impeaching Donald Trump.
McCONNELL AND MOST REPUBLICANS think the party has a chance to regain control of one or both of the houses in the 2022 election. Failure to censure Greene would make that task far more difficult. Cheney probably will keep her leadership post, but she’s now the clear underdog to retain her Wyoming House seat.
REPUBLICANS FACE A CIVIL WAR that could lead to the de facto creation of two parties — traditional conservatives like McConnell, and far-right conservatives who will never abandon Trump. As for moderates like Mitt Romney or John Kasich, there’s no real place for them; they have little support among GOP voters.
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