Biparty group’s infrastructure plan unlikely to come true – big Democratic package looks more likely, analysts say


As a bipartisan group of 10 U.S. senators scramble to strike an infrastructure deal with President Joe Biden‘s administration, analysts say investors shouldn’t expect a breakthrough.

“It’s hard to see a real way forward at this time,” said Ben Koltun, director of research at Beacon Policy Advisors, weighing the odds of the group’s proposal, which is priced at around $ 1,000 billion. dollars, including $ 579 billion in new spending. .

“They have 10 votes, and that’s 50 votes less than the 60 votes needed to bypass the obstruction,” Koltun also said, noting that the group includes members of the Senate base, rather than senior leaders from the Senate. the room who are able to rely on their colleagues.

By letting the ongoing talks unfold, the Beacon analyst added, Democratic leaders show a willingness to engage in bipartisan negotiations, and then when a deal doesn’t come through, they can pursue a bigger package through the process. of reconciliation with the support of moderate Democrats who wanted to see a bipartisan effort.

Related: A guide to budget reconciliation, which Democrats could use to advance Biden’s agenda

Koltun’s main forecast for this bigger package is that it will be enacted in the fourth quarter of this year and will cost $ 3 trillion to $ 4 trillion over 10 years, offset by tax increases of $ 1,000 to $ 2,000 billion. of dollars. Biden initially offered to spend $ 2.3 trillion on his US Jobs Plan and $ 1.8 trillion on his US Family Plan.

Ed Mills, Washington political analyst for Raymond James, also said that an infrastructure package that is done through reconciliation without the support of Republicans is more likely. It forecasts spending of $ 2,000 billion to $ 3 trillion, with enactment in the fall and about half paid for through tax hikes or increased enforcement of existing rules.

On the issue of Biden’s proposal to have a retroactive increase in capital gains taxes, Mills said he expects “there will be some level of retroactivity.” But analyst Raymond James said it could be positive for the entire SPX market,
+ 0.18%,
as it could prevent a massive sell off, although it would be negative for individual investors who wish to sell before higher rates.

“There is a perverse incentive in the market for this to be retroactive – a sort of general advantage over an individual advantage,” he said.

Meanwhile, Stifel’s Brian Gardner said in a recent memo that the bipartisan group’s infrastructure efforts “face long chances.”

10 Senators’ talks with the Biden administration “are likely to slow down the legislative process and the longer the process lasts, the greater the risk Democrats will not be able to push through a tax hike,” Gardner added , responsible for Stifel’s policy in Washington. strategist. “I still see a tax hike as likely, but the odds have gone down slightly.”

Cold water on VE charge

The bipartisan group’s fundraising plan includes recourse to unused COVID-19 aid and charges for electric vehicle drivers.

Koltun is not impressed with the potential charges for electric vehicles, noting that the Congressional Budget Office estimated that an annual levy of $ 100 – which is roughly what drivers of conventional vehicles pay in taxes on gasoline – would only bring in $ 1.1 billion over five years. He also points out that the White House has already expressed its opposition.

“It’s a good Republican talking point,” he said, as electric vehicle owners are seen as “wealthy progressives on the shores who sort of bypass a traditional gasoline tax.”

Mills of Raymond James said the proposed fee for electric vehicles also had to do with increasing the number of people being asked to pay for things, while not changing the Republican tax cuts of 2017.

“We are witnessing an electrification of our fleet of vehicles, and so I think it is a recognition that as soon as possible, we will need another source of funding for our surface transport,” he said. declared.


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