Three Major Implications as Infrastructure Talks Break Down; The Rich and Taxes; China Bill Moves
Author: Greg Valliere
June 9, 2021
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.
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 Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. 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.
©2023 AGF Management Limited. All rights reserved.
