Both Parties Eye Major New Spending
Author: Greg Valliere
May 8, 2020
THERE’S A DESCRIPTION IN WASHINGTON for a bill that’s filled with goodies — a Christmas tree. There’s a rich tradition of taking a must-pass measure and loading it up with something for everyone, and that’s what appears to be happening now on the next (and possibly final) virus aid bill.
BOTH PARTIES ARE EQUALLY EAGER: Nancy Pelosi is talking about a $2,000 check for individuals, hikes in food stamps, expanded nutritional benefits and Medicaid spending, assistance for the Post Office, more money for coronavitus testing and tracing, and a huge increase in outlays for state and local governments.
PRESIDENT TRUMP WANTS a capital gains tax cut, a payroll tax reduction, tort reform, infrastructure spending, restoration of the deduction for business meals and entertainment — and an end to enhanced unemployment benefits, which Republicans say are so generous that they are a disincentive for people to return to work.
IF BOTH SIDES GOT WHAT THEY ARE SEEKING, the price tag could far exceed $2 trillion, which horrifies deficit hawks, who fear that red ink will exceed $4 trillion this year. Pelosi says she will have a “Rooseveltian” bill ready within days, but most Republicans want to go slow on the next bill, which seems likely to occur.
[IF THIS MORNING’S UNEMPLOYMENT FIGURES are as bad as many analysts expect, that could light a fire under Congress to act quickly on the next bill, but for now we think it could be late June before a final package comes into focus.]
THE COMPROMISES: Not all of the Christmas tree provisions will prevail, they simply cost too much money. Here’s our best guess on some possible compromises:
State and local government aid: Several hundred billion dollars is the likely price tag, but not a penny for pension funds. Small cities and counties will be included this time.
Another check for most everyone: $2,000 checks are out of the question, but there could be smaller checks for people who are hard-hit.
More unemployment relief: Possible but less than in the previous bill; Republicans will fight hard against another big payout.
Small business aid: possibly one last tranche, maybe for a couple hundred billion dollars, with strict eligibility rules. No prep schools allowed.
A payroll tax cut: Trump prefers abolition, which is out of the question, but a small cut has a outside chance.
Business entertainment: Possibly a small tax exemption, not as large as Trump wants.
Tort reform: A deal is possible, but a blanket exemption from lawsuits is unlikely. Lots of money is at stake for lawyers on both sides of this issue, which is why a compromise is possible.
Aid for hospitals, first responders, more testing, etc.: Very likely, only issue is how much of a hike, not whether.
More money for food stamps, nutrition, etc.: Pelosi will get something, not as much as she wants.
Infrastructure spending: Mitch McConnell and most Republicans are cool to the idea, but something modest is possible, perhaps in a separate bill.
BOTTOM LINE: Everyone has made their first demands, next will come first offers. The key will be Trump, who wants one more shot of stimulus before the election. He will have to battle with reluctant Republicans, but a $1 trillion-plus bill still looks likely after several weeks of bickering and horse-trading.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI is registered as a portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
© 2020 AGF Management Limited. All rights reserved.