A SELF-IMPOSED MEMORIAL DAY deadline for reaching a bipartisan deal on infrastructure spending will come and go — as President Biden’s ambitious agenda stalls.
DEMOCRATS WE TALKED WITH YESTERDAY conceded that both parties are far apart on an infrastructure deal, despite a White House offer last week to cut its $2.3 trillion request to about $1.7 trillion. In private, Republicans respond that something around $800 billion is as high as they will go. The talks may collapse soon.
THERE ARE SEVERAL REASONS FOR THE IMPASSE OVER SPENDING: The economy is surging, states are now flush with cash, and as former Treasury Secretary Lawrence Summers writes in this morning’s Washington Post, massive federal stimulus may contribute to an inflationary over-heating of the economy.
ANOTHER KEY FACTOR IS GROWING ANGER from the left, as progressives oppose delaying the infrastructure bill as Congress stalls on police reform, gun control, a Jan. 6 commission, extending the debt ceiling — which could gobble up time this summer. Complicating this scenario are aggressive White House aides who seemingly contradicted the president’s conciliatory stance late last week.
DEMOCRATS EYE PLAN B: White House aides aren’t interested in more negotiations — they want to move an infrastructure bill via budget reconciliation. But that requires all 50 Democrats to vote for it and at least two moderates — Joe Manchin and Kyrstin Sinema — may not go along. Getting all Democrats on board will require watering down the amount of money spent on infrastructure.
A STAND-ALONE infrastructure bill may come into focus by mid-summer, but what about the other two Biden blockbusters? Winning passage of nearly $2 trillion in social spending and a major tax hike will be an uphill fight. Both will be scaled back significantly later this year, as debate drags on until winter.
THIS IS A BLOW to Biden’s reputation as a skilled negotiator. Everyone he deals with reports that he’s likable and sharp on the details, but he cannot control the biggest variable — next year’s elections. Republicans aren’t likely to agree to trillions of dollars in new spending; the GOP will make spending a major issue in next year’s campaign.
THE MARKET IMPLICATIONS: With a huge new spending bill looking increasingly unlikely, bond yields may stay relatively low (although the likely path of rates is higher). For equity investors, the big Washington story is that major tax hikes are looking less and less likely, which could ease a major concern.
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