Capital Gains
Over the years I have often found it interesting in the two views of the world held by Wall Street and under the Capitol dome. On Thursday and today all my Wall Street contacts were asking about the “leaked” intent of President Biden to raise the capital gains tax rate to the same rate as ordinary income. The Biden proposal would raise the top personal rate from 37% to 39.6%.
First things first, is this news? In his campaign papers last year candidate Biden proposed exactly this idea; how this is news is somewhat a mystery to me. Second, the Bloomberg report was “leaked.” Not sure how one leaks a plank of the platform of a victorious candidate, but someone wanted to start the debate. Leaks are never a good source for decision making. Those who leak have all sorts of motives, and without knowing the viewpoint of the leaker motives are hard to judge.
Politicians and investors live in different universes; interestingly the capital gains story, the lead on Bloomberg, didn’t make page 1 of the Washington Post. The Washington political newsletters I read barely mentioned the capital gains Bloomberg story. In a 50/50 Senate, and expectation that not a single Republican would vote to increase personal tax rates, it is hard to count 50 votes the Democrats will need. New Hampshire is a state with no income tax and where low taxes are at their political core. It has two Democratic Senators and one expecting a very competitive race in 2022. Manchin and Sinema seem like hard to get votes, and Sinema’s AZ colleague Mark Kelly is up for re-election in 2022 and with so many retirees who can live on capital gains who live in AZ it seems like a tough vote. Bottom line is the raise in capital gains to 39.6% seem unlikely.
Infrastructure
Thursday Republicans unveiled their counter proposal to the President’s $2.5T infrastructure bill. The Republican proposal totaled $568B and was limited to more traditional infrastructure that included roads, mass transit, airport etc. However, the Republican proposal did include water projects focused on safe drinking water. While some progressive Democrats panned the proposal; leading moderates such as Senators Coons and Manchin thought it was a good starting point. Senator Coon (D,DL) had previously raised the possibility of dividing the Biden proposal into two bills: traditional infrastructure under “regular order” and the more progressive ideas such as schools and housing in a second bill that would be taken up under Reconciliation.
The $568B seems like a good starting point for discussions, and the addition of ideas such as broadband and electric car battery chargers may be programs that Republicans could accept. The White House didn’t dismiss the Republican proposal and talks may yield a two-track approach to legislation.
