EDITOR NOTE: Have you seen President Biden’s latest stimulus plan? There’s lots in it, some of which you may find agreeable, depending on where you sit politically, and others you may consider “pork.” The point of contention here is “how” the government is going to pay for it. Biden has said all along that he’s raising taxes on wealthier households and corporations. A hard left turn? Sure, we knew it was coming. But the extent to which the government is “printing” money while “taxing” money puts this vicious cycle into overdrive--it needs to print in order to spend, but it needs to take away this money via taxation in order to sustain the spending and printing. Hidden and explicit taxation at the same time. Wall Street calls Biden’s strategy a Trojan Horse. The author below calls it a Divide and Conquer strategy. We call it what it really is: a political, monetary, and fiscal Blitzkrieg. Your money--whether you’re on the wealthier or less-wealthier side--is going to be collateral damage either way. And taking your money out of the system by investing in non-CUSIP gold and silver may be the only safe corner to seek shelter.
Biden's infrastructure programs will roll out this week. A second proposal focusing on child care and healthcare programs is expected in April, then massive tax hikes.
Two Pieces or Three?
The Wall Street Journal reports Biden Plans to Split Spending Plan in Two
President Biden plans to split up his next big government-spending push into two programs and will lay out his vision for an infrastructure-focused first proposal, including green-energy programs, at an event in Pittsburgh this week, a top administration official said Sunday.
The second proposal, which the administration plans to release in April, would focus more on child care and healthcare programs, among other priorities for the administration, White House press secretary Jen Psaki said on “Fox News Sunday.”
At some point the administration plans to propose tax increases on higher-income households and businesses to help pay for the programs, though it has yet to lay out its tax strategy or how it will fit together with the next two proposals.
Divide and Conquer or Trojan Horse?
Infrastructure spending is easy to split off. It will contain enough earmarks and boondoggles for Red and Blue states that it will sail through Congress despite Mitch McConnell's mostly accurate assessment on Fox News last week.
“They’re now cooking up yet another package they’re going to call infrastructure, but it’s going to be a Trojan horse that includes massive tax increases on Americans. They’re going hard left,” said McConnell.
The $3 trillion infrastructure bill may contain pieces of tax reform or even all of it, if Democrats can get enough Republicans to sign off, but taxes increases are a tough sell.
The purpose of splitting the bills in two or three is to get enough Republicans on board for each of the pieces, except taxes.
The final piece, Taxes will not fly with Republicans, but if Biden can get the rest through with 60 votes, then if Democrats do not lose any votes in the Senate they will be able to pass a massive tax bill through reconciliation with only 50 votes.
This is not a trojan horse strategy. It is a divide and conquer strategy.
The key to Biden's divide and conquer strategy is in reconciliation rules.
It normally takes 60 votes to pass a bill in the Senate to kill a filibuster. In special situations, however, Reconciliation Rules allow passage by a simple majority.
Reconciliation bills can be passed on spending, revenue, and the federal debt limit, and the Senate can pass one bill per year affecting each subject. Congress can thus pass a maximum of three reconciliation bills per year, though in practice it has often passed a single reconciliation bill affecting both spending and revenue.
Policy changes that are extraneous to the budget are limited by the "Byrd Rule", which also prohibits reconciliation bills from increasing the federal deficit after a ten-year period or making changes to Social Security.
The reconciliation process was created by the Congressional Budget Act of 1974 and was first used in 1980.
Biden wants to get as much through Congress with Republican support as he can.
Infrastructure will be an easy sell. Then Biden may opt to throw taxes into the next piece or alternatively opt for a second easy bite if he can get enough Republican on board or simply unwilling to filibuster.
The Lock and the Key
Divide and Conquer is highly likely to work provided Democrats do not lose a single vote in the Senate.
Senator Joe Manchin (D, West Virginia) is the Lock and the Key. He comes from the most Republican state in the union. And disagrees with Democrats on many issues.
His vote can prevent passage of a bill or ram it through.
Without Manchin, Democrats come up short in the Senate 51-49. With Manchin on board, the Senate ties 50-50 and Vice President Kamala Harris gets to cast the tie breaker.
Expect Higher Taxes, Possibly a VAT
Last week Manchin came on board with tax hikes. I commented Expect Higher Taxes, Possibly a VAT, to Support Huge $4 Trillion Infrastructure Bill
The smart money expects higher taxes of some kind with Manchin on board.
Manchin is the lock and the key with divide and conquer as the overall strategy.
Originally posted on The Street