Washington Weekly: Bipartisan Infrastructure Bill?

The Senate confirmed two Biden administration nominees to serve as deputy secretaries at the Department of Education and Department of Health and Human Services. The House approved legislation to enhance workplace protections for pregnant women and a measure that imposes new restrictions on private debt collection.

The Senate will continue to vote on various Biden administration nominees. The House is expected to consider a Senate-passed bill that addresses hate crimes and violence targeted at Asian Americans and Pacific Islanders.

Bipartisan Infrastructure Bill? 

As reflected by a series of high-level meetings at the White House this week, President Biden and Senate Republicans continue to go through the motions of trying to craft a bipartisan infrastructure bill. If a bipartisan bill evolves, it would be limited to traditional infrastructure spending such as roads, bridges and railroads and would end up with a price tag south of $1 trillion. Given that this would far undershoot President Biden’s plan, Democrats likely would feel compelled to follow up with another bill of more spending on infrastructure and social services that also would be accompanied by tax increases on individuals and corporations. If there are two bills, it is this second bill that will be the one to watch for its potential impact on investors due to its significant tax provisions. A bipartisan bill would allow Congress and the President to legitimately boast of cooperative action, but this temporary achievement is unlikely to forestall movement on a more partisan package through the budget reconciliation process.

Next Steps on Taxes. 

With Monday being tax day (hopefully you aren’t stuck with finishing your tax returns this weekend), it’s a good time to check in on the logistics of pending tax legislation. President Biden has released two comprehensive spending proposals that are paid for in part by major tax increases. In a few weeks, the Treasury Department will release its “Green Book,” which will provide detail on dozens of tax proposals. While the President has spoken in general terms about his preferred tax increases, the Green Book will put some “meat on the bone” on these proposals. We expect that Democrats in Congress will rely heavily on this document as they develop their own legislative proposal. Congress won’t include all of the Green Book proposals, but many will be included in an initial legislative proposal that will be unveiled as early as next month.

Highest Tax Bracket Concerns. 

One tax increase that will almost certainly be included in the pending tax bill is an increase in the top tax bracket for individuals from 37% to 39.6%. While we have previously mentioned this, we wanted to remind people that there are discussions among some in Congress to expand this bracket to capture more taxpayers. For 2021, the top bracket impacts individuals making more than $523,600 and married couples filing jointly making over $628,300. A White House official recently stated that the new top bracket would capture singles making over $453,000 and married couples above $509,000, which has raised concerns about a potential marriage penalty. President Biden has been constant in his support for tax increases on individuals making over $400,000 and some in Congress are considering making that the threshold for the highest tax bracket. The possibility of expanding the highest tax bracket is currently under discussion, and while no decisions will be made for at least a few weeks, individuals in a tax bracket of less than 37% should not be surprised if the tax bill elevates them to the highest tax bracket.

Voting Rules. 

With so much attention on the states that are considering or have already passed new voting rules, a Senate committee this week considered House-passed legislation that would, among many other things, establish national standards that supersede certain state rules on voting. Senate Democrats will soon try to pass this bill, but its ability to get the 60 votes needed for passage is practically nil. It’s our sense that most Americans favor both maximizing voting by all eligible citizens and ensuring that elections are fair and secure. Writing detailed rules for accomplishing both objectives is where this consensus ends, however, at least among more partisan voters and lawmakers. This argument will not end anytime soon and will not result in the passage of new laws at the federal level this year. Activists on both sides will focus their advocacy at the state level, and this issue will be prominently debated in elections for many years to come.

Digital Currencies. 

We’ve gotten a variety of questions about digital currencies recently. In recent years, there’s been an increase in cryptocurrencies, which are virtual currencies held on decentralized crypto networks (unlike fiat currencies that are issued by governments and regulated by a central bank). There are questions about whether cryptocurrencies meet the main characteristics of being currency, namely as a medium of exchange, store of value and widely accepted form of payment. Cryptocurrencies generally have not been used as a major source of payments because they have not had a stable value and because they are not legal tender backed by a government (there also has been the development of stable coins, which are backed by one or more fiat currencies). In this context, central banks are examining the development of their own digital currencies (central bank digital currencies or CBDC). While China has been at the forefront of this and is getting closer to implementation, the Federal Reserve is in more of an exploratory stage. More tangibly, the Fed has been focused on shortening the settlement cycle on payments and is developing a real time payments network called FedNow. While a virtual US dollar is still years away, businesses and individuals will continue to increasingly use digital payments (instead of cash), a trend the pandemic has only accelerated.

US and Beijing Winter Olympics 2022.

US human rights groups continue to press the Biden administration for a US boycott of the winter Olympics hosted by China next year for humanitarian reasons. At this time, we do not believe this option is under serious consideration by the administration, though there is a vocal group in Congress who will try to press the issue. An alternative that is under consideration is a “diplomatic” boycott, where US elected officials, diplomats and other Biden administration officials would signal US concerns by not attending the games. Olympic games are often attended by such officials. The diplomatic boycott option has bipartisan support in Congress and is expected to be added to a longer list of bills addressing US-China issues in the next few weeks. We believe the Biden administration will reject the diplomatic boycott option, but dynamics and tensions in the broader US-China relationship may cause a reconsideration at some point.

GOP Civil War. 

House Republicans this week ousted House Conference Chairman Liz Cheney (R-WY), who was the third highest ranking person in the House Republican leadership. They have replaced her with Congresswoman Elise Stefanik (R-NY). This spat underscores the Republican party’s challenge in how best to rebuild following President Biden’s victory last November. Whether the party can be successful in the mid-term elections next year with such a strong association with former President Trump will be a story line to watch through November of next year. More “establishment” Republicans are speaking out against the party’s reliance on the former president, but this only emboldens the Trump faction of the party. Successful Republican candidates in competitive areas will need the support of both wings of the party, which could be a challenge if the intra-party fight escalates. In the months ahead, we will be watching to see whether the legal cases the former president is likely to face will harm (or help) his political standing. Beyond that, it remains to be seen whether any prominent Republicans (such as Florida Governor Ron DeSantis or South Carolina Senator Tim Scott) will emerge as plausible alternatives to the former president as the head of the party.

Democrats Have Issues Too. 

Democrats faced a similar intra-party challenge from Senator Bernie Sanders (I-VT) and his allies in the 2020 primary election. Biden was able to manage that threat and unite the party enough to win the nomination and presidency. Of course, his ability to unite the party was made far easier by the strong desire of Democratic voters to defeat President Trump. Nonetheless, it is far easier for the party in the majority to manage internal party fights. There is a clear and uncontested leader of the party – President Biden – who sets the direction of the party and can more decisively (and quietly) resolve any party dissension. Still, there are clearly two major wings of the Democratic party and they have differences in policy priorities and tactics. These wings often compete against each other in primary elections. Intra-party challenges among Democrats will not be as public as those on the Republican side, but they will suddenly become more pronounced if Democrats lose their majority in either the House or Senate (or both) in next year’s midterm elections and members find themselves in the dreaded minority.