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Investors have bid up infrastructure stocks sharply since Election Day. As of Tuesday morning, one widely held ETF, the Global X U.S. Infrastructure Development Fund
PAVE,
has soared some 54%, nearly double the S&P 500’s
SPX,
impressive 28% jump.
Obviously, infrastructure’s gains have been fueled by President Joe Biden’s plan to pour trillions into everything from roads and bridges to water systems, electric charging stations and more.
But setting goals is one thing, achieving them is another. And based on the president’s dealings with lawmakers this week, I’d say his infrastructure plan is beginning to hit some potholes.
Democrats balking
It’s not the usual suspects—Republicans—who are gumming up the works for this Democratic president. Biden met Monday with West Virginia Sen. Joe Manchin, who has said he’s concerned about the $2.25 trillion cost of the president’s infrastructure agenda and the tax increases Biden wants to pay for it. Manchin is already on record as opposing Biden’s initial proposal to hike the corporate tax rate to 28% from 21%, but has hinted that 25% would be doable.
The two-term Democrat also wants to see Biden and the Republicans play nice in the sandbox and cooperate with each other.
Really? With Mitch McConnell?
The Kentucky Republican, now relegated to minority leader status, has been “friends” with Biden for decades (which in Washington really doesn’t mean much) yet now says that “100% of my focus is standing up to this administration.” What a pal.
So no one was expecting any kind of kumbaya moment when McConnell and House Minority Leader Kevin McCarthy—fresh from booting Wyoming Liz Cheney from her leadership post for having the temerity to criticize Donald Trump—met with the president Wednesday to talk infrastructure.
House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer were there too; they already think dealing with their Republican counterparts is a waste of time, and they’re probably right.
McConnell didn’t disappoint, standing firm on his belief that “Senate Republicans are not interested in revisiting the 2017 tax bill.” He even said that Republicans and Democrats also need to agree on what infrastructure is. He has said in the past that Biden’s vision of infrastructure is based on “a whole laundry list of other things…much of which is unrelated to infrastructure.”
Breaking news: McConnell says tax increases a ‘red line’ in infrastructure talks with Biden
Opening offer
Of course, in politics, as in business, you often begin a negotiation by asking for more than what you’re really willing to settle for. Biden wants $2.25 trillion. McConnell last week said he’d go as high as $600 billion over five years, and then lifted it to $800 billion, to make it look like he’s “cooperating.”
It’s not like there’s a narrow window here; they’re still nearly $1.5 trillion apart. McConnell, who says the difference is based on “a whole laundry list of other things…much of which is unrelated to infrastructure,” is also flat-out opposed to any of Biden’s proposed tax hikes.
Democrats have been calling McConnell every name in the book for years, but “naive” isn’t one of them. McConnell knows that Manchin and possibly another Senate Democrat, Arizona’s Kyrsten Sinema, won’t automatically line up behind the president.
In a 50-50 Senate, Biden needs both. It’s not that the president will have to give up a few things—perhaps a lot of things—with Republicans to get an infrastructure bill. He’ll also have to deal with members of his own party. Even in the minority, McConnell knows how to use leverage against the other side. Love him or hate him, he’s one of the wiliest senators in American history.
Of course, if the president could corral all 50 Senate Democrats, then, with Vice President Kamala Harris casting the tiebreaking vote, he could pass spending and tax bills using a parliamentary procedure called (alert: arcane inside-the-Beltway term to follow) “reconciliation,” meaning all he needs is a majority of votes, not a 60-vote supermajority that most legislation requires.
Keep it moving
Biden’s first 100 days saw numerous successes: the Covid-19 vaccination campaign has lowered the curve on infections, hospitalizations and deaths. The economy is beginning to open up. And even with April’s disappointing payrolls report (usually 266,000 new jobs would be a solid number, but not now, apparently), the economy still added some 1.8 million jobs in the first third of the year; if that pace were to continue, that’s 5.4 million annualized. We’d still be in the hole from 2020’s collapse, but that’s still big progress.
An infrastructure bill would keep things moving forward. And the president is right, the United States has myopically underinvested in infrastructure for years. Everyone knows it. But without major new, sustained investment, we’ll continue to muddle along, driving over rusting bridges, passing through outdated airports, and all the rest. And long-term economic growth will suffer.
Former President Donald Trump enjoyed House and Senate majorities during his first two years in office and wasn’t able to do it. Biden has razor-thin majorities in both chambers now—but perhaps only for another year and a half. What will he do to satisfy not only members of his own party, but the other party, which intends to “stand up” to him? To govern is to choose.
