So the word on the street, certainly on Wall Street, is “gridlock.” Now we can debate whether political gridlock is in fact good (for the economy and markets), but the consensus take is that it’s the new status quo in divided-government Washington. Goldman Sachs, for instance, sees “no major changes on taxes . . . spending is likely to be extended at current levels . . . an infrastructure deal seems unlikely.”
That’s pretty representative of what most analysts, whether in Manhattan or Washington, are saying today. And maybe that’s the correct take. Lots of investigations by House Democrats and lots of tweets by President Trump. But no meaningful legislative action. On to 2020.
But if you squint a bit, it’s not so hard to see how we could do better than gridlock. As a note today from Capital Economics points out, “Both Trump and the Democrats appear to support an increase in federal infrastructure spending, and a bipartisan package of tax cuts aimed at low-income earners is another possibility.”
The idea of “Infrastructure Week” has become a joke, but Nancy Pelosi is already talking up the idea and seems to favor it over impeachment. And if a trillion-dollar plan is many repaired bridges too far, how about a down payment that’s a compromise structure-wise with the thinking of the Trump White House?
Moreover, why not a middle-class tax cut that’s a payroll tax cut, with Democrats maybe agreeing to extend some part of the Trump tax cut such as the business expensing provision (which some Dem economists also like)? It’s not as if there wouldn’t be plenty of Dem agenda items for the party’s 2020 candidate to run on, including Medicare for All or various cash payment schemes for lower-income Americans. And calls for more infrastructure, of course, as well as raising taxes on wealthier Americans. Of course. Reducing drug prices is also getting frequent mention as a possible avenue for bipartisanship.
Even a gridlocked Washington won’t be boring. There might be another SCOTUS justice to confirm at some point, and the economic/geopolitical clash between the US and China will continue. A slowing economy might escalate Trump’s criticism of the Powell Fed. Nothing boring about any of that.Published in