Insights and Market Perspectives
January 25, 2022
THE BUILD BACK BETTER BILL is still alive, as Congress considers passing
chunks of the measure. But with Sen. Joe Manchin proclaiming that debate will have to "start from scratch," this will be complicated, especially as a Feb. 18 deadline to keep the government funded looms over 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, over what Manchin would accept in a revived BBB bill.
TWO COMPETING NARRATIVES: As this debate resumes, the Big Picture issue is whether more stimulus is really needed. Manchin and every Republican in Congress believes that inflation has been exacerbated by blowout spending.
THE OTHER NARRATIVE: Democrats worry about a November election debacle, so they see the proverbial train leaving the station on massive climate spending, child care, expanded Obamacare, prescription drug price controls, etc. If they don't get this in 2022, a Republican House surely would balk in 2023-24.
A COMPLICATION IS THE FEB. 18 DEADLINE for funding the government - a shutdown isn't out of the question. Republicans aren't enthusiastic about passing a bill; they would prefer to pass still another extension, which would lock in spending at last year's levels - a de facto beginning of fiscal restraint, which the GOP believes is necessary because of inflation.
A BUILD BACK BETTER BILL probably will not be tied to a Feb. 18 budget package, because that deal will be elusive, and it may take many weeks before Manchin could embrace any scaled-back BBB bill.
STILL ANOTHER COMPLICATION is how many shots the Democrats will get for a bill that could pass via the budget reconciliation process, which would require only 50 votes (plus a Kamala Harris tiebreaker) to pass. Joe Biden now favors passing BBB in "chunks" but it's unclear whether there would be enough opportunities under budget rules.
WHAT IS CLEAR is that the Democrats - including Manchin - are still committed to new spending for health benefits, pre-kindergarten education, and a huge package of environmental spending. These goals are still alive; expanded child tax credits may not be alive, because Manchin will resist that very expensive provision.
WHAT'S THE VEHICLE? As the Democrats desperately seek a deal - any deal - it strikes us that their goal should be attaching it to another bill that is likely to pass. A Feb. 18 budget deal probably will stall, so the vehicle to watch is the China competitiveness bill, which would fund spending on semiconductor chips and more U.S. manufacturing. It has widespread bipartisan support.
MARKET IMPACT: If a BBB measure is revived this spring, which is likely, the new spending would be relatively modest. The big concern for investors would be tax hikes that may be in the measure, focusing on very wealthy individuals and highly profitable corporations, both of which aren't out of the woods yet.
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