Market insights and outlook
January 25, 2022
THE BUILD BACK BETTER BILL is still in effect, as Congress plans to pass
pieces of the measure. But with Sen. Joe Manchin proclaiming the debate will have to “start over,” it will be complicated, especially as the Feb. 18 deadline to maintain government funding looms in the budget landscape.
MOST OF US ARE CONCERNED about Ukraine, inflation, the Federal Reserve and the NFL’s unfair overtime rule — but many key Democrats are focused, once again, on what Manchin would accept in a revived BBB bill.
TWO COMPETING STORIES: As this debate resumes, the overarching question is whether more stimulus is really needed. Manchin and all Republicans in Congress believe that inflation has been exacerbated by rampant spending.
THE OTHER TALE: Democrats worry about an election debacle in November, so they see the proverbial train leaving the station on massive climate spending, child care, expanding Obamacare, controlling prescription drug prices, etc. If they don’t get that in 2022, a Republican House would surely back off in 2023-24.
ONE COMPLICATION IS FEB. 18 DEADLINE for government funding – a closure is not out of the question. Republicans aren’t keen on passing a bill; they’d rather pass yet another extension, which would lock in spending at last year’s levels — a de facto start of fiscal restraint, which the GOP believes is necessary because of inflation.
A BUILD BACK BETTER BILL likely won’t be tied to a Feb. 18 budget package because that deal will be elusive, and it may be several weeks before Manchin can pass a scaled-down BBB bill.
YET ANOTHER COMPLICATION is the number of knocks Democrats will get for a bill that could go through the budget reconciliation process, which would only need 50 votes (plus a Kamala Harris tiebreaker) to pass. Joe Biden now favors moving BBB to “pieces”, but it’s unclear if there would be enough opportunity under fiscal rules.
WHAT IS CLEAR is that Democrats – including Manchin – are still engaged in new spending on health benefits, pre-K education and a huge package of environmental spending. These goals are still alive; expanded child tax credits may not be in effect as Manchin will resist this very costly provision.
WHAT IS THE VEHICLE? As Democrats desperately seek a deal — any deal — it seems to us that their goal should be to tie it up with another bill that might pass. A Feb. 18 budget deal will likely stall, so the vehicle to watch is China’s competitiveness bill, which would fund spending on semiconductor chips and more manufacturing in the United States. It enjoys broad bipartisan support.
MARKET IMPACT: If a BBB measure is reinstated this spring, which is likely, new spending would be relatively modest. The biggest concern for investors would be the tax hikes that might be within reach, focusing on very wealthy individuals and very profitable corporations, which are not yet out of the woods.
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