INFRASTRUCTURE NEGOTIATIONS between President Biden and a handful of Republicans collapsed yesterday. This wasn’t a surprise, but there are three big implications:
1. A fallback deal with members from both parties will now take center stage, but time is becoming a factor. A new package from Senators like Mitt Romney and Joe Manchin could take weeks to iron out. Passage before the July 4 break is very unlikely; enactment before the August recess won’t be easy.
2. Biden is prepared to slash his request — a lot. The failed talks with Sen. Shelly Moore Caputo managed to smoke out the president, who went from asking for $2.25 trillion for infrastructure to $1.7 trillion to — incredibly — $1 trillion. Progressives on the left were aghast over Biden’s willingness to cave.
3. The Joe Manchin bond rally continues. A frequent subject at our morning meetings is why bond yields are so low, even amid an inflation scare; the Treasury 10-year yield is on the verge of breaking through 1.50%.
One factor, we believe, is the growing likelihood that Manchin and Senate Republicans will continue to resist lavish spending. Outlays will still rise, of course, but a new budget blowout is looking less likely — a good story for the bond market.
BOTTOM LINE: A watered-down infrastructure bill still has a chance of winning enactment, but no time soon. A second bill, covering a wide range of social spending, is on life support. A modest tax hike, perhaps to partially pay for the first bill, still has a chance by year-end.
LET’S TAX THE RICH !! Populist Democrats, who are in a slump, finally got a bloody shirt to wave — the rich don’t pay taxes. This unsurprising revelation was confirmed yesterday by an activist group which released stolen Internal Revenue
Service documents that showed investors like Warren Buffett, Jeff Bezos and Elon Musk — who can afford the very best lawyers and accountants — pay very little in taxes. We’re shocked.
MORE IRS RECORDS APPARENTLY WILL BE RELEASED by the liberal ProPublica group, which could face federal robbery charges and Republican assertions that they are colluding with the White House. This leak will breathe life into several progressive ideas, such as a minimum tax proposed by Elizabeth Warren, and tax on unrealized income, proposed by Sen. Ron Wyden (D-Ore.).
THESE IDEAS ARE GOING NOWHERE NOW, but the release will expose a fissure among Republicans. The Wall Street Journal editorial page obviously will oppose any new taxes, but — interestingly — polls show that a majority of Republicans, including the Trump populists, want rich individuals and corporations to pay more.
CHINA BILL CLEARS SENATE: In a rare sign of bipartisan cooperation, the Senate yesterday passed legislation that would spend about $250 billion to compete technologically with China — and would spend $50 billion to significantly upgrade U.S. manufacturing of computer chips.
THE BILL STILL HAS TO PASS in the House, which could take at least several more weeks, and there’s some opposition from the left, which failed to win a ban on using any of the money for stock buy-backs. And on the right, there’s opposition to the cost and the lack of strict provisions to keep new U.S. technology from being stolen.
THE MEASURE WOULD MAKE IT EASIER to sanction China for civil rights abuses, and would commission a new study on the origin of the coronavirus. Many of the provisions won’t have an impact immediately; upgrading U.S. technology will take a while.
BUT IN THE SHORT TERM, the bill will give cover to the politicians, who are eager to bash China as speculation grows that the Coronavirus may have leaked from a Wuhan lab.
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