- Biden’s $2.25 trillion infrastructure program takes a hit as Manchin rejects hike in corporate tax rate to 28%Â
- JOLTS job openings expected to remain strong
Biden’s $2.25 trillion infrastructure program takes a hit as Manchin rejects hike in corporate tax rate to 28% — President Biden’s $2.25 trillion infrastructure plan, which he announced last Wednesday, took a hit yesterday when Democratic Senator Manchin said he would support a hike in the corporate tax rate to only 25% rather than 28% from the current 21% level. Mr. Manchin pointed out that when Republicans cut the corporate tax rate to 21% from 35% in 2017, he offered an amendment that would have cut the rate only to 25%.
Mr. Manchin noted that the infrastructure program cannot pass without his vote in the 50-50 Senate. He said, “As the bill exists today, it needs to be changed. This bill will not be in the same form you’ve seen it introduced or see people talking about it.”
He also said, “It’s more than just me. There are six or seven other Democrats that feel strongly about this. We have to be competitive, and we are not going to throw caution to the wind.”
Senator Manchin’s proposal for a 25% corporate tax rate would put the rate just slightly above the median of 24% for the G-20 countries. A 25% U.S. corporate tax rate would equal China and South Korea, but would be well above the 15% level in Canada and Germany and the 17% level in the UK.
If the Biden infrastructure program can raise the corporate tax rate to only 25% from 21%, rather than 28%, then the revenue from the tax hike could be cut by as much as 43%. That would suggest that either the spending in the program would have to be trimmed, or the program would add to the national debt.
The Biden administration said last week that the $2.25 trillion infrastructure bill would be fully paid for with the corporate tax rate hike to 28% from 21%, a hike in the minimum tax on foreign corporate profits, and the phase-out of some $40 billion of fossil-fuel subsidies.
It remains to be seen whether Senator Manchin was just voicing his corporate tax demand for political consumption at home, or whether he will stick to his guns. Mr. Manchin has recently taken full advantage of his position as the king-maker for Democratic legislation. He has reveled in his moderate positions and his attempts at bipartisanship with Republicans. If it is true that there are other Democratic Senators who oppose a hike in the corporate tax rate to 28%, then it seems likely that a hike to only 25% is in the cards.
The stock market would certainly be happy if the corporate tax rate is not raised all the way to 28%. A hike in corporate taxes takes a direct bite out of earnings, which in turn takes a direct bite out of stock prices.
On the brighter side for Democrats, the Senate Parliamentarian ruled Monday that Senate Democrats can pass two more bills this year through the budget reconciliation process, which by-passes the Republican Senate filibuster. Democrats already used the budget reconciliation process once for the $1.9 trillion pandemic aid bill that passed in March.
If they wish, Democrats will now be able to use the budget reconciliation process for the $2.25 trillion infrastructure bill, and then again for the social-policy part of President Biden’s policy agenda, which is expected to be announced in mid-April. Democrats have not decided how to proceed, but Monday’s ruling from the Senate Parliamentarian gives them more options about how to proceed with the big legislative programs they envision.
The Biden administration said that the second part of its agenda would focus on “helping families with the challenges like health care costs, child care, and education.” Spending on that package is expected to be at least partially offset by higher personal taxes on high-income taxpayers.
JOLTS job openings expected to remain strong — The consensus is for today’s Feb JOLTS job openings report to show a small decline of -17,000 to 6.900 million, falling back a bit after January’s solid +165,000 increase to 6.917 million.
U.S. job openings are in strong shape at only 561,000 below the pre-pandemic record high of 7.154 million posted in January 2020. Job openings should improve going into this spring as the pandemic fades and as business restrictions are eased, leading to new hiring.
The markets were encouraged on the labor front by last Friday’s strong March payroll report of +916,000, which was far above market expectations of +650,000. In addition, Jan payrolls were revised upward by 67,000 to 233,000, and Feb payrolls were revised upward by 89,000 to +379,00.
Payrolls have now grown by a monthly average of +692,000 over the past three months (Jan-March), which bodes well for getting the labor market back to pre-pandemic levels by next year or 2023. However, payrolls still have to rise by another 8.4 million jobs to get back to the pre-pandemic record seen in February 2020.
In another sign of an improvement in the U.S. labor market, last Friday’s March unemployment rate fell -0.2 to a new 1-year low of 6.0%. Still, the unemployment rate has a long way to go before falling to the pre-pandemic record low of 3.5%.
