Let's get a little real on inflation — Biden tries to soften "soak the rich" talk — Tax hikes are hard to do

From: POLITICO's Morning Money - Thursday Apr 29,2021 12:04 pm

Apr 29, 2021

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Quick Fix

Let’s get a little real on inflation — We pretty much told you yesterday that President Joe Biden would deliver an address calling for the biggest expansion in government in a generation backed by giant tax hikes on the wealthy and corporations. He did exactly that while peppering his remarks with trademark adlibs about how he doesn’t really hate Wall Street or the wealthy (more on which below) but just wants people to pay their fair share.

We won’t rehash all that right this second . But couple Biden’s address with the Fed’s persistent call that inflation is not at all an issue … and, well, you might have an issue. Because there is a not insignificant chance that the White House and the Fed are wrong and the endless spending spree and free money will end in inflationary pain. MM is NOT saying this will happen (save the outrage emails). But it does seem like there is too little attention being paid to the possibility.

Via R.C. Whalen: “There is a growing awareness on Main Street that inflation is a problem. Everybody knows about the run-away markets for financial assets and single-family homes.

“It seems that the stocks with the least substance are likely to benefit the most in the current interest rate environment. But vendors and suppliers are starting to raise prices in the face of scarcity in supply chains, the precursor to a significant increase in inflation. The growing gap in valuations between different stocks is starting to drive a feeding frenzy, from SPACs to plain old M&A."

Douglas Mackenzie emails MM from Phoenix : “[F]rom the guy on the road here. Inflation is real - restaurants, barbers, groceries, fuel, and beer - all have had prices soar upwards of 10 percent or more since January. Have you bought a glass of wine out there for less than $14?” (MM hasn't bought a glass of wine at all. But still. You also see it in Uber Eats prices.)

The adlibs — Biden pulled off a deft trick of proposing trillions in new spending in taxes while looking to ease the shiv jab a bit from the prepared text. “Good guys and women on Wall Street,” Biden said. ... “Sometimes I have arguments with my friends in the Democratic Party. I think you should be able to become a billionaire or a millionaire but pay your fair share.”

But mainly it was a soak the rich address — Our Natasha Korecki and Christopher Cadelago: “Biden wants to soak the rich to give to the middle class and poor. And he ain't afraid to say so.

“In his first address before a joint session of Congress, the president embraced a tax-and-spend mantra to frame his next big legislative fight, walking right up to a third rail that has terrified Democrats for decades and forced his predecessors to triangulate and retreat to safer middle ground.”

GOOD THURSDAY MORNING — Hey Mets fans, why can’t your team beat the darn Red Sox? Sheesh. Email me on bwhite@politico.com and follow me on Twitter @morningmoneyben.

A message from the Independent Community Bankers of America:

Community banker congressional meetings this week: Accounting for roughly 60 percent of Paycheck Protection Program lending from nearly 50,000 locations serving every congressional district, community banks have been financial first responders during the coronavirus pandemic. As part of this week’s ICBA Capital Summit, community bankers are meeting with members of Congress and offering bipartisan legislative solutions to continue moving our nation forward. Read ICBA’s bipartisan agenda.

Driving the Day

Biden hits the road post-address and will visit Atlanta to attend the Democratic National Committee's “Back on Track” drive-in car rally “to celebrate the president's 100th day in office” ... Senate Banking has a hearing at 10:00 a.m. on “The Dignity of Work” … Jobless claims at 8:30 a.m. expected to dip again to 539K from 547K … Q1 GDP at 8:30 a.m. expected to show a gain of 6.7 percent.

YEAH ABOUT THAT $4 TRILLION IN SPENDING — Burgess Everett, Sarah Ferris, and Marianne LeVine on the theme we laid out on Wednesday, which is when it comes to Biden’s full wish list … yeah right.

“Biden has dropped $4 trillion in spending and tax increases in Democrats’ laps. They're still not sure how the heck to make it into a law. The White House is still technically negotiating with Republicans … The president's latest package of policies is significantly more complicated than the Covid aid bill, there's no hard deadline to pass it and some Senate Democrats are resisting another one-party bill.”

TAX HIKES ARE … HARD — Our Brian Faler: “[R]aising taxes is hard — for all the loose talk about money-hungry politicians, tax hikes are actually somewhat rare in Washington. And Democrats will be contending with tiny majorities in both the House and Senate.

"Biden’s proposals will only be the starting point in negotiations and lawmakers will have their own ideas. Here’s a look at eight of Biden’s proposed tax increases, ranked from most likely to happen to least likely” (Click and read ‘em)

BUSINESS REACT — Business Roundtable President & CEO Joshua Bolten: “We are deeply concerned … by the cost of the President’s proposals and the reliance on tax increases that would hurt U.S. competitiveness, job creation and particularly the small business sector”

BIDEN VS CHINA — Reuters’ Trevor HunnicuttSusan Cornwell: “Biden argued that his proposals for families and infrastructure, which together total about $4 trillion, represent a once-in-a-generation investment vital to America's future … Biden said the spending plans were needed to keep up with China, which he and his administration sees as a major strategic challenger.”

WHAT A DIFFERENCE A YEAR MAKES — Our Sarah Ferris and Burgess Everett: “Biden’s first joint address to Congress couldn’t have looked any more different than the one delivered by his predecessor just over a year before.

“Biden’s hopeful rhetoric on Wednesday echoed in a mostly empty — and fully masked — chamber in yet another mark of the pandemic that has gripped the nation for 14 months. Instead of colorful guests flown in from home, the House’s galleries were reserved for socially distanced lawmakers, only a fraction of whom could watch the speech in person.”

JOIN TUESDAY FOR A CONVERSATION ON SMALL BUSINESSES POST-COVID-19: About one in six small businesses closed their doors since the pandemic began. The small businesses that remained open are getting by with fewer employees after laying off workers or a hiring freeze. What is ahead for small businesses in 2021 as they try to weather the ongoing economic uncertainty? And how does President Biden’s $1.9 trillion coronavirus relief package intend to support small-business owners? Join POLITICO for a virtual conversation on what small businesses need to survive and thrive beyond the Covid economic crisis. REGISTER HERE.

Fly Around

THE BIDEN/POWELL POWER TEAM — Bloomberg’s Rich Miller: “Forty years ago, President Ronald Reagan and Federal Reserve Chair Paul Volcker oversaw a root-and-branch restructuring of the U.S. economy.

“Today, Joe Biden and Jerome Powell are trying to do the same thing -- only in reverse. In the Reagan-Volcker regime change, power in the economy shifted from the government to the market and from labor to the owners of capital. … As the U.S. emerges from the pandemic, Biden is reasserting the role of government spending and taxation in the economy”

SEC ENFORCEMENT CHIEF QUITE OVER INDONESIAN TORTURE CASE — Our Kellie Mejdrich and Zachary Warmbrodt: “SEC Chair Gary Gensler's pick to serve as the agency's enforcement director resigned unexpectedly … amid mounting criticism from progressives over her work as a corporate defense lawyer.

“Alex Oh, who was in private practice for two decades before Gensler announced her new role last week, resigned after a federal judge reprimanded her and others defending oil giant ExxonMobil in a class action lawsuit brought by Indonesian villagers. It was a stunning reversal for the SEC less than two weeks into Gensler's tenure at the helm of the agency.”

FED DOES NOTHING — NYT’s Jeanna Smialek: “Jerome H. Powell, the Federal Reserve chair, made it clear … that his central bank wants to see further healing in the American economy before officials will consider pulling back their support by slowing government-backed bond purchases and lifting interest rates.

“Mr. Powell spoke at a news conference after the Fed announced that it would leave rates near zero and continue buying bonds at a steady clip, as expected. He painted a picture of an economy bouncing back — helped by vaccines, government spending and the central bank’s own efforts."

TRANSITIONS — Billy Rielly is now associate VP for media relations at the Consumer Bankers Association. He previously was comms director for Rep. Dan Meuser (R-Pa.).

A message from the Independent Community Bankers of America:

Community bankers and ICBA offer bipartisan solutions: At a time of historic challenge and opportunity, community bankers this week are meeting with members of Congress as part of the ICBA Capital Summit.

Congress is closely divided, but it need not be gridlocked. While saving an estimated 33.7 million jobs through the first round of Paycheck Protection Program lending and serving every congressional district with their more than 700,000 employees, community banks have a track record of working with both parties to craft pragmatic solutions.

During this week’s ICBA meetings, community bankers will discuss bipartisan policy reforms to help continue the economic recovery in urban, suburban, and rural communities nationwide. Read ICBA’s bipartisan agenda.

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