by Greg Valliere, AGF Management Ltd.
THE $1 TRILLION INFRASTRUCTURE BILL that should pass in the Senate later today is just the Democrats’ appetizer. Party leaders unveiled their $3.5 trillion main course yesterday, and it’s wildly aspirational, with even some Democrats gagging on all the taxing and spending.
SO WE REITERATE that infrastructure spending — which is quite popular in both parties — is far from a done deal. Why? Two major reasons:
1. Nancy Pelosi and most House Democrats will not agree to the infrastructure package that will pass today unless it’s combined with the $3.5 trillion bill. Good luck with that this fall.
2. The second bill is so expensive — with so many new taxes — that Democrats Joe Manchin and Kyrsten Sinema are unlikely to support it without major changes.
AN AUDACIOUS PROPOSAL: General goals, not specifics, were released yesterday on the second bill. It includes huge new outlays for public housing, Medicare expansion (dental, vision, hearing), green energy provisions, including new outlays for electric cars; sweeping new education initiatives, etc.
THE TWO BIGGEST OBSTACLES, other than reluctant Democrats, are the Senate Parliamentarian, who may rule that several provisions (including immigration reform) are not germane in a bill that relies on a budget reconciliation provision that has to be tied to spending. The second obstacle is the bill’s reliance on huge new taxes.
IN TALKING WITH SOURCES ON CAPITOL HILL, we get the sense that members of both parties are reluctant to support big new taxes with an election coming next year. With all 50 Senate Republicans opposed, Manchin becomes the pivotal player; he will insist on watering down the tax hikes, especially for corporations.
OUR SENSE IS THAT THERE COULD BE A MODEST TAX HIKE on wealthy individuals, but many Democrats are lukewarm over a hike in the estate tax or the top capital gains rate. And while the top corporate tax could rise by two or three percentage points, there’s little support for radical ideas like Elizabeth Warren’s 7% tax on revenues earned by corporations that report more than $100 million in profits.
BOTTOM LINE: The media will portray today’s vote as a victory for Schumer and President Biden, as if an infrastructure bill is virtually done. It’s not — it faces a tortuous path this fall, complicated by a bitter “blame game” over raising the debt ceiling. As for $3.5 trillion in new spending, that’s simply aspirational, headed for a major haircut.
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HAPPY BIRTHDAY BARACK OBAMA: It’s difficult to overlook the hypocrisy as Barack Obama hosted his 60th birthday bash on Martha’s Vineyard with mostly unmasked guests, while the country’s elites ranted about the scruffy motorcycle rally in Sturgis, S.D.
AMERICANS RESENT being told what to do, and the tone-deaf A-list Obama party (and Gavin Newsom’s maskless dinner with lobbyists at the French Laundry in Napa) reinforce the deep Covid divide in the country. Washington DC’s mayor issued a mask mandate in late July and was photographed hours later at a wedding reception, not wearing a mask, of course. Do as I say, not as I do . . .
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This post was first published at the AGF Perspectives Blog.
