This was the week President Biden had promised his proposed budget for FY 2023 that begins on October 1, 2022. There was much attention given to the President’s proposal to pay for some of his budget increases with a wealth tax that would hit taxpayers with assets over $100M. The heart of the proposal was a scheme that would tax unrealized gains of these high-net-worth individuals.
I was interviewed by Barrons on the new budget and made the point that no one needed to panic as the tax was unlikely to ever be passed. First, Congress hasn’t passed an on-time budget since 1997 and, in an election year when Republicans believe they have a chance to take control of Congress, the chances of bipartisan cooperation on budget issues is near zero.
As I pointed out in the article when this tax idea has come up in the past, Congressional bill writers have found it just about impossible to craft language that is both workable and fair. Some of the progressives who support the idea seem to understand unrealized capital gains, but don’t seem to have a comprehensive idea of unrealized losses. Bottom line is this not going to happen anytime soon.
The Budget also demonstrated a new realization that more money needs to be devoted to defense, public safety and infrastructure. All three of these categories saw budget increases recommended by the Administration. Progressive Democrats, led by Senator Sanders, decried the defense increases; but the war in Ukraine, Russia’s aggression, and concern with China’s growing influence led most legislators to support more money for the military.
With crime rates increasing across the nation, many Democrats know that their message has to change from “defund the police” to one that recognizes the need to fully fund public safety. Police abuses will still be a Democratic focus, but more resources are called for in the budget.
The bipartisan infrastructure bill was one of the legislative highpoints during the first year of the Biden Administration and the budget builds on those successes.
However, the bottom line is that no budget is likely to be passed and the government will run on a Continuing Resolution through 2022. Ukraine continues to dominate the news cycles and President Biden returned from a round of meetings in Europe with commitments from NATO allies to work on the twin issues of protecting Ukraine and providing aide to the NATO countries that are on the front line of the refugee crisis. This is going to be a focus of public policy in the weeks ahead.
Finally, the Senate took a parliamentary step to move the nomination of Fed nominee Lisa Cook out of the Banking Committee where it was stuck on a tie vote. As early as next week the Senate could act on the nominations of Cook and Jefferson to fill vacancies on the Fed Board and on the nomination of Powell for a second term as Fed Chair. If the Senate doesn’t act prior to the Easter/Passover break, it is likely to happen before the next FOMC meeting the first week of May.