Congress Heads Home, Budget and Infrastructure Wait
There is an old saying in Washington that the nation is safer when Congress is not in session, so next week as Congress is gone for the Memorial Day holiday we can all sleep better knowing that Congress is out of DC. The Senate will only take one week off and return June 7, while the House is out until June 14.
Infrastructure: The Senate Republicans negotiating with President Biden offered a $928B plan moving closer to the White House number of $1.5T. While infrastructure talks seem to be making some progress, Congress is also working on a Highway Reauthorization, which would help pave the way for agreement on the highway portion of infrastructure legislation. Both Senate Republicans and the White House have expressed some degree of optimism that a deal in so-called traditional infrastructure is possible, and that talks will continue over the Memorial Day break. In my view, President Biden is more anxious than some progressive Democrats to strike a bipartisan deal; but either way I continue to believe that there will be an infrastructure bill by the fall.
For progressives, whatever doesn’t make it into a bipartisan bill can be put into Budget Reconciliation as the approval process for the FY 2022 budget begins today with the unveiling of the Biden budget for the coming fiscal year.
If there is a bipartisan infrastructure deal it is unlikely to contain some of the social infrastructure programs such as veteran hospitals, low-income housing and lead pipe replacement; hence a Budget Reconciliation Bill containing infrastructure is going to be needed in any event.
Reconciliation is part of the budget process, and with the President’s submission of his budget today Congress will spend the summer working on the budget using the White House version as a starting point. If the Democrats can hold together there is unlikely to ever be a vote on the Biden Budget, but Republicans would like to force a vote to make Democrats vote for or against the tax increases in the Biden proposal. There are a number of Democrats who oppose some or all of the Biden tax increases, especially related to capital gains, and Republicans would like to get them on the record as the 2022 elections approach. Tax increases may make the House version; but in the Senate, even with Bernie Sanders chairing the Budget Committee, it is unlikely that 50 Democrats can agree on much of the progressive tax policy. Corporate taxes are in play but much of the increases on the personal side seem less likely.
The Kansas City Fed each year runs one of the most important meeting of economists at Jackson Hole, Wyoming. Last year Covid prevented an in-person meeting, but the Fed has announced that the session will have limited capacity but will be in-person at the end of August. The Fed often uses the Jackson Hole confab to develop policy alternatives and there has been speculation that the improving economy and the subsequent lower unemployment may put the Fed in a position of having an open discussion at Jackson Hole of modifications in Fed policy with respect to tapering and a reduction in their portfolio. Monthly numbers between now and then will give a good indication of policy timing.
