Monday Look Forward: January 17-21, 2022

The Ongoing Futile Fight Over Voting Rights and Filibuster Reform May Take Second Stage to the President’s Press Conference. Crypto Comes Under More Scrutiny.  And Will February Give Us BBB-Lite?

Today, is a federal holiday in honor of the great civil rights leader Dr. Martin Luther King. Both political parties are taking the day to honor his legacy at various rallies and events around the country. Congress will return to work tomorrow.  

Overall, this week will be a legislative “wash” - We do not see any significant movement or progress on any major legislation this week.  President Biden and Congressional Democratic leaders will do what they did last week: Try to pass a voting rights bill (which will fail) and then, as a result of that failed vote, try to change the Senate filibuster rules (which, again, will fail). Efforts last week to change the filibuster rules blew up when Senator Kristen Sinema (D-AZ) took to the Senate floor, defiantly making clear she would not support filibuster changes (the same day President Biden went to the Senate to meet with Democrats to ask them to do just that in order to move forward on the voting rights bill). Moreover, President Biden’s impassioned speech in Georgia last week on voting rights did not move the political needle in Washington as no members of the Senate appeared to shift their views and vote.

In our view, the big event in Washington this week will be President Biden’s press conference Wednesday at 4:00 p.m. It will be the first formal press conference the President has held since November 2, 2021, at the COP26 Climate Summit in Scotland. With low poll numbers and his stalled Build Back Better (BBB) legislation in the Senate, watch for President Biden to use the press conference to help re-set the focus and energy of his 2022 agenda.

We note we are hearing from Congress more debate over and focus on Blockchain and cryptocurrencies.  Congress is, in our view, significantly behind the curve in understanding either issue and/or potential implications for the US and global economy. But that is quickly changing as they are learning fast, especially when they see headlines of Walmart looking to create their own cryptocurrency.  In the last few months, there has been a significant uptick in congressional hearings on the topic. A good example: On Thursday, the House Energy and Commerce Committee will hold a hearing on the energy impacts of Blockchain. The actual title of the hearing is, interestingly, “Cleaning Up Cryptocurrency: The Energy Impacts of Blockchains” which ties it into the sustainability issue and Congress’ efforts to foster a robust alternative energy market.  

In our view Congress is increasingly likely to legislate on crypto this year, establishing which US financial regulators have regulatory and enforcement power.  Seeing China, India, and even Iran move to regulate (or effectively squash) the use of cryptocurrencies, key members of Congress to whom we have spoken are keenly interested in moving quickly to “get the sector under control.” We will be reporting more frequently on this issue as things progress and if you are invested in crypto, watch this space closely.

And Let’s Not Forget the Build Back Better Budget Reconciliation Act: At the risk of sounding like a broken record (because we have said this in our last five reports), we continue to believe passing some form of Build Back Better (BBB) continues to be a “we must do, we cannot fail” issue for Congressional Democrats - especially with the approaching November mid-term elections. With that in mind, we are hearing increasing chatter from Congressional and White House sources of quiet efforts to re-draft a slimmed-down version of BBB – we will call it “BBB-lite” – a package with a much smaller child tax credit, among other items.  Our guess is it will come in with a price tag between $1 – 1.2 trillion.

The goal is to hammer out a deal in February to get it done in advance of President Biden’s State of the Union Address on March 1.

For investors, it is important to remember Congressional Democrats are arguing over the size and scope of social programs - they are NOT arguing over most of the tax increases found in the House version of BBB passed November 19, 2021, among which include:

>       Raising the top marginal tax rate to 39.9 percent

>       Create a surcharge on modified adjusted gross income (MAGI) equal to 5% in excess of $10 million-plus 3% for those MAGI above $15 million.

>       Raising corporate tax rates to a minimum of 15 % on businesses with profits over $1 billion

>       Create a 1% excise tax on the value of stock repurchases by corporations

>       Limit IRA contributions when balances reach $10 million and accelerate the required minimum distributions for those accounts.

>       A 5% tax on Non-Grantor Trusts

The only outstanding big tax issue among Democrats:  How to deal with caps put on SALT (state and local taxes) deductions taken away in the 2017 tax bill.  As a reminder, when the House passed their version of BBB, they raised the cap from $10,000 to $80,000. But Progressive Senate Democrats – led by Senate Budget Committee Chair Bernie Sanders (I-VT) strongly objected to any increase in the deduction, arguing it was nothing more than a tax cut for the wealthy. Since then, we have seen little to no movement on any compromise on the issue (NOTE: Remember this is a Budget Reconciliation bill. It only needs 50 Democrats in the Senate plus the Vice President’s vote for passage. Republicans in the House and Senate are uniformly opposed to the whole bill.). 

We will update you on any breaking events this week. If you have any questions, please reach out and let us know.