IT’S BEEN QUITE A WEEK — inflation is percolating, the Mideast is on fire, anxiety is growing over cyberwarfare, and House Republicans have damaged their own brand. But let’s focus this morning on a surprisingly positive development: a bipartisan deal is in sight on an infrastructure bill.
PRESIDENT BIDEN IS WILLING TO COMPROMISE: He told Republicans yesterday in a meeting at the White House to come back to him next week with specific proposals for a scaled-back infrastructure bill. Here are five major points as both parties eye a Memorial Day deadline for final proposals:
1. Enactment of an infrastructure bill is possible by late summer. It would cost far less than Biden’s $2.3 trillion plan, but far more than the GOP’s $568 billion proposal. Both sides could grudgingly accept something slightly north of $1 trillion.
2. Paying for this will be difficult. Our sense is that there aren’t enough “pay fors,” so guess what? It won’t be paid for. Higher taxes are a deal-breaker for Republicans, which reinforces our view that whatever tax hikes emerge in a final deal will be modest; a deal with virtually no new taxes isn’t out of the question.
3. Once a bipartisan bill passes, Biden and the Democrats will be on their own in seeking their next bill — the $1.8 trillion family aid grab-bag, which has little chance of winning even one Republican vote. Biden may try to force this through Congress via reconciliation late this year, but a bloated bill may not appeal to a handful of moderate Democrats, who will be the key to this measure.
4. Activists in both parties are leery. Progressives worry that Biden will agree to major concessions, with an infrastructure bill costing far less than $2.3 trillion. Republican activists worry that they could have their fingerprints on huge new spending, depriving them of a campaign issue in 2022.
5. Biden’s desire for a bipartisan deal seems to be genuine. He appears to be channeling Ronald Reagan, who was always willing to take what he could get, and then come back for more. Take what you can get — Biden can get an infrastructure bill, then he would fight for a family aid package later this year.
MARKET IMPLICATIONS: The prospect of an over-heating economy could be reduced if there’s a scale-back on infrastructure, which might keep bond yields from surging. And the growing likelihood of no major tax hikes would remove a source of anxiety for investors. A deal is within sight, and the markets can live with it.
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