While a bipartisan group of 10 U.S. senators is working to make a deal on infrastructure with President Joe Biden’s administration, analysts say investors shouldn’t expect a breakthrough.
“It’s hard to see a real path forward right now,” said Ben Koltun, director of research at Beacon Policy Advisors, in assessing the chances for the group’s proposal, which has a price tag of about $1 trillion, including $579 billion in new spending.
“They have 10 votes, and that’s 50 votes short of the 60 votes needed to bypass the filibuster,” Koltun also said, noting that the group features rank-and-file members of the Senate, rather than top leaders in the chamber who are able to lean on their colleagues.
By letting the current talks play out, the Beacon analyst added, Democratic leaders are showing a willingness to take part in bipartisan negotiations, and then when a deal doesn’t happen, they can pursue a bigger package through the reconciliation process with the support of moderate Democrats who wanted to see a bipartisan effort.
Koltun’s primary forecast for that bigger package is that it will get enacted in this year’s fourth quarter and cost $3 trillion to $4 trillion over 10 years, offset by tax increases of $1 trillion to $2 trillion. Biden initially proposed spending $2.3 trillion on his American Jobs Plan and $1.8 trillion on his American Families Plan.
Ed Mills, Washington policy analyst for Raymond James, also said an infrastructure package that gets done through reconciliation without Republican support is more likely. He predicts spending of $2 trillion to $3 trillion, with enactment in the fall and about half of it paid for through tax hikes or increased enforcement of existing rules.
On the issue of Biden’s proposal to have a retroactive hike in capital-gains taxes, Mills said he expects there “will be some level of retroactivity.” But the Raymond James analyst said that could be a positive for the overall market
as that might prevent a sell-off, even as it would be negative for individual investors who wanted to sell ahead of higher rates.
“There is a perverse market incentive for this to be retroactive — kind of a general benefit versus an individual benefit,” he said.
Meanwhile, Stifel’s Brian Gardner said in a recent note that the bipartisan group’s effort on infrastrucure “faces long odds.”
The 10 senators’ talks with the Biden administration “will likely slow down the legislative process and the longer the process goes on, the greater the risk to Democrats that they will be unable to pass a tax hike,” added Gardner, Stifel’s chief Washington policy strategist. “I still view a tax hike as likely but the odds have dipped slightly.”
Cold water on EV fees
The bipartisan group’s plan for funding includes relying on unused COVID-19 aid and a fee for drivers of electric vehicles.
Koltun isn’t impressed with the potential EV fee, noting the Congressional Budget Office has estimated that an annual levy of $100 — which is roughly what drivers of conventional vehicles pay in gasoline taxes — would bring in only $1.1 billion over five years. He also points out the White House already has voiced opposition.
“It’s a good Republican talking point,” he said, as EV owners are viewed as “wealthy progressives on the coasts who are kind of skirting a traditional gas tax.”
Mills of Raymond James said the proposed EV fee also has to do with expanding who gets asked to pay for things, while at the same time not making a change to the Republican 2017 tax cuts.
“We are seeing an electrification of our vehicle fleet, and so I think that is a recognition that sooner rather than later we are going to need to have an alternative source of funding for our surface transportation,” he said.