On Sunday, December 19, West Virginia Senator Joe Manchin dropped a bomb on the Biden administration when he said he could not support the $1.9 trillion Build Back Better legislation. With a 50-50 split in the Senate, a no vote from a Democrat was a death knell for the pending program. The Senator cited rising inflation as a reason why the US cannot afford to spend another almost $2 trillion after the cost of the legislation would not be covered by tax hikes.
While Republicans cheered, the move angered many Democrats as the legislation is the cornerstone of the President’s campaign pledges. As we move forward into 2022, the Build Back Better legislation has suffered a blow, but it could make a comeback in 2022.
Politics is the art of negotiation
- No does not necessarily mean no in politics.
- Henry Clay, the great compromiser and US Senator from the 1800s, said that the perfect compromise is when both sides of a negotiation walk away from the table with a deal that makes each unhappy.
President Biden and Senator Manchin continue to look for a common path- They agree on tax hikes
- Many Democrats are furious with Senator Manchin
- As a former Senator, President Biden has continued to talk with Senator Manchin to find a path for agreement.
- The President and the West Virginia Democrat agree that taxes need to increase on the wealthiest Americans.
- Spending is the issue- The President and Senator have not closed the door on negotiations as we head into 2022.
Another Senator from the President’s party objects to tax hikes
- The administration needs all fifty votes from Democrats in the Senate to pass the BBB legislation.
- An agreement with Senator Manchin may not be enough.
- Arizona Senator Kyrsten Sinema objects to increasing taxes.
Raising taxes in an election year could be an issue for the majority party
- With the mid-term elections in 2022, increasing taxes could be a difficult pill for voters to swallow.
- Moreover, any attempt at a retroactive tax hike could cause carnage for the majority party in the elections, handing control to the opposition party for the second half of the administration’s first term.
Markets have already digested higher tax rates- Any changes could cause lots of volatility
- Markets have already prepared for higher interest and tax rates in 2022.
- A situation where BBB fails and taxes remain unchanged could lift the stock market despite interest rate hikes.
- A smaller BBB legislation requiring fewer tax hikes could have a similar impact on stocks.
- Stocks are going into 2022 in a bullish trend, with the leading indices at or near record highs. The trend is always your best friend in markets across all asset classes.
Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!