Several factors in Biden’s plan do not bode well for bond prices, which fall when yields rise but fall with bond prices. Sri Kumar pointed out that the $2.5 trillion in infrastructure spending by the US Department of Transportation under the president’s recently adopted and anticipated infrastructure plan would reach $1.3 trillion, or about $500 billion more than the current annual budget.
Given congressional Republicans “willingness to support tax increases, he said, it is unlikely that the ambitious spending plan will be paid for with higher taxes. On Tuesday, political consultant Anita Dunn wrote a memo to interested parties, pointing to recent Fox News polls showing 56 percent of respondents favoring raising taxes on businesses to finance infrastructure and 63 percent favoring raising income taxes on the wealthiest Americans. Biden is expected to announce a series of revenue increases, including a $1.5 trillion tax increase for the top 1 percent of earners and a tax on capital gains after death.
Still, the success of Biden’s efforts will depend on whether he can transform popular support into a closely divided Congress, where Republicans continue to refuse to offer help. Republicans control the House and Senate and can single-handedly thwart any legislation.
When proposals to increase capital gains tax are put on the stock market, everyone is excited, selling up and asking questions, “he said. Biden will propose raising the marginal income tax rate from 37 percent to 39.6 percent and the top tax rate for people earning more than $1 million from 35 percent to 38.5 percent, sources told Reuters. Senate Majority Leader Harry Reid expressed skepticism about Biden’s proposed tax increases, leaving open how the White House’s proposals can be implemented.
The $1.9 trillion bailout plan unveiled by President-elect Joe Biden calls for shaping the US economy in the way Democrats like it, and putting federal dollars into public schools. The proposals cover everything from paid leave for workers to tax cuts for the top 1 percent of earners, the sources said.
It is an ambitious effort, on top of the roughly $4 trillion already spent on pandemic control. Congressional Republicans, skeptical of a minimum wage increase and a ballooning budget deficit under President Donald Trump, could be quickly rolled back.
But after reviewing Biden’s plan, some doubt it can shore up the federal government’s long-term finances. It’s $1.9 trillion, which is a little rich, but it’s a lot of money, “said David Axelrod, a former Republican consultant who is director of the Center on Budget and Policy Priorities at the Brookings Institution in Washington, D.C. The Biden plan fits President Barack Obama’s vision of reducing economic inequality through increased spending on social services and direct remittances to households, he said.
It would increase unemployment benefits and food aid, provide direct payments of up to $1,400 per person to eligible households, and temporarily extend child-care tax credits. It would help childcare providers and help families with children under 18 pay tax on their income.
There would be $400 billion to get the nation vaccinated, including $130 billion that could help reopen schools. Families who do not earn enough to owe federal income taxes to qualify for the plan, which would increase maximum benefits while temporarily fully reimbursing child tax credits.
In his speech Thursday, in which Biden unveiled the plan, he emphasized that low interest rates mean that the government can borrow at lower rates than in the past because of low borrowing costs. Biden, however, has provided only a framework for negotiations, not a finished product, and much of those promised benefits could be diluted. Alec Phillips, an economist at Goldman Sachs, expects there will eventually be a compromise between what Biden outlined Thursday and a final version of his plan.
The question is whether some elements of Biden’s plan can garner enough votes to ease the evenly divided Senate, where at least 60 votes will be needed. Fiscal consolidation is a time-consuming process that would limit Democrats “ability to do so. But to pass the Biden proposal, it would need to pass both the House and Senate.
Some investment firms are optimistic that Democrats could pass the tax increase, according to a Wall Street Journal report.
As he did during his campaign, Biden called for an increase in the corporate tax rate from the current 15 percent to 35 percent. Street also expects him to propose raising the tax rates paid by foreign subsidiaries to 21%, which would raise $440 billion.
Initial reactions from Wall Street were positive as initial details of Biden’s infrastructure plan were revealed. Biden said parts of his plan would raise $2 trillion over 15 years, and $1.5 trillion in the first five years.
The S & P 500 rose 0.4% after hitting a record high the previous day and closed above the 4,000-point mark. The Nasdaq composite, which has been trading below the S & P 500 since mid-February, gained 1.5% and closed at a session high. With government spending to support infrastructure projects like roads, bridges, airports, and other infrastructure, most Wall Street strategists see rising stock prices as a result of the Biden plan and the possibility of higher interest rates.
