Why Biden’s Massive $6 Trillion Spending Proposals May Not be ‘Dead on Arrival’
Online COOL amendment still being pushed in Senate innovation bill
In Today’s Digital Newspaper
Market Focus:
• U.S. markets closed Monday for Memorial Day
• Key focus next Friday: Jobs report
• Red states outperforming blue ones
• Barron’s cover page deals with inflation and shortages
• What is on Pro Farmer newsletter’s front page
• CFTC traders’ commitments
Policy Focus:
• Biden unveils $6 trillion budget for FY 2022, with mandatory spending implications ahead
• While Biden budget ‘dead on arrival’ among GOP, Dems will use reconciliation for some $
• No proposed budget cuts re: farm bill and crop insurance
• Big Biden spending for climate change across many departments, including USDA
• Biden proposes average 2.7% pay increase for federal civilian employees
• Economic assumptions in Biden’s budget proposals
• Middle-income tax cuts assumed to expire in Biden budget
• Focus on what Biden wants for USDA spending
• House Ag chairman likes USDA’s budget proposals
Biden Administration Personnel
• Senate confirms Biden's top scientist
Energy & Climate Change:
• Next big growth for oil companies: biofuels?
• Psaki defends gas prices as 'well in line' with recent decades
Livestock, Food & Beverage Industry Update:
• U.S. food industry notes COOL concerns in Senate innovation bill
• Most dairy cows are kissing cousins, and scientists are worried: WSJ
Coronavirus Update:
• U.S. moves toward coronavirus herd immunity
• Employers can require Covid-19 vaccine under federal law, new guidance states
Politics & Elections:
• GOP senators block legislation seeking probe of Capitol riot
Other Items of Note:
• Postal Service raises rates, sending price of first-class stamp to 58 cents
MARKET FOCUS
U.S. markets are closed Monday for Memorial Day. The highlight on the economic-data calendar next week will be Friday’s May jobs report from the Bureau of Labor Statistics. The consensus forecast is for a gain of 700,000 nonfarm payrolls, after a disappointing 266,000 in April. The unemployment rate is expected to tick down to 5.9%, from 6.1%.
Other data out next week include the Institute for Supply Management’s Manufacturing Purchasing Managers’ Index for May on Tuesday and the Services equivalent on Thursday. Both are seen staying roughly even with April’s buoyant levels. The Organization for Economic Cooperation and Development also releases its latest economic outlook on Monday.
U.S. equities Friday: The Dow gained 64.81 points, 0.2%, to 34,529.45. The S&P 500 added 3.23 points, 0.1%, to 4204.11. The Nasdaq gained 12.46 points, 0.1%, to 13,748.74.
Red states outperforming blue ones. Of the top 10 states with the lowest unemployment rates in April, nine have Republican governors. Economist Dan Mitchell looked at these figures and concluded that there’s “a clear relationship between joblessness and the degree to which states pursue big-government policies.” The Wall Street Journal notes that the only Democratic-controlled state in the 10 states with the best unemployment rates is Wisconsin, where the state Supreme Court forcibly nullified the governor’s overzealous lockdown measures.
Barron’s cover page deals with inflation and shortages. The article (link) begins: “America’s chicken-sandwich war has the combatants scrambling for supplies. Breast prices have doubled this year. Chick-fil-A has run low on sauce. Burger King has had pickle problems—jars, not cucumbers, are hard to come by. An isolated supply squeeze? Anyone who is building or remodeling a home, or buying or renting a car, or stocking up on pool chlorine or dog food, knows better. In the land of plenty, there suddenly seems to be an everything shortage.”
Market perspectives:
• CFTC traders’ commitments (Source: Barron’s):
Items on Pro Farmer’s front page include:
• China cracks down on corn imports
• Commodity crackdown extends beyond corn
• U.S./China ‘engagement period’ over
• USDA hikes ag export, import outlooks
• Biden releases huge budget wish list
• Infrastructure deal still far apart
• Turning up the heat on beef packers
• WHIP+ decision being finalized
• Pro Farmer members urged to fill out acreage survey
• Page Four report: Update on pandemic relief payments to producers
POLICY FOCUS
— Biden budget is ‘dead on arrival’ but shows blueprint for dramatic changes, some which could clear via reconciliation. While Republicans are already labeling President Biden’s huge budget proposals “dead before arrival,” they vividly show an aspirational presidency who wants to change the direction of the United States. Of the $6 trillion in spending Biden is proposing for next year, some $2 trillion more than before the pandemic in 2019 and more than half is for Social Security, Medicare, Medicaid and other mandatory federal obligations that are set in law. Much of the rest maintains funding for existing military and domestic programs. Biden also formally proposed an average 2.7% pay increase for federal civilian employees in 2022 as part of his fiscal 2022 budget proposal.
But it’s not just mandatory spending that will see huge funding gains as the president’s discretionary priorities get big funding hikes, including Health and Human Services (23.1%), Commerce (27.7%), and the Environmental Protection Agency (21.3%).
However, Defense (1.6%) and Homeland Security (0.2%) budgets would decline after inflation.
Items favored for big spending: The president’s budget includes a $14-billion increase to tackle the climate crisis; $10.7 billion more to combat the opioid epidemic; an additional $20 billion for schools in high-poverty areas; and an $8.7-billion increase for the Centers for Disease Control and Prevention to boost its ability to detect and respond to global health crises like the Covid-19 pandemic.
Biden’s proposed additions are significant. The spending for infrastructure and social programs, together with tax breaks for all but the wealthiest Americans, would cost roughly $4.5 trillion spread out over 10 years.
The Biden administration’s budget projections are based on its forecast of economic growth of 5.2% this year, 3.2% next year and less than 2% over the long term. The forecast was finalized on Feb. 19, however, before enactment of the $1.9 trillion relief package in March (and does not fully account for details of Biden's infrastructure and other proposals that were released later.
Biden’s budget also assumes continued low inflation and interest rates. But some economists have warned about the risks of rising prices given massive federal spending and the pent-up demand and excess savings from the pandemic. And recent data suggest that the administration may be too conservative on inflation. The government said Friday that the Fed’s preferred measure of core inflation was up 3.1% in April over a year ago, well above the central bank’s target of 2% inflation. Biden’s budget assumes inflation at 2% this year and never exceeding 2.3% over the decade. Fed officials view the recent jump in inflation as “transitory,” reflecting an economy that is experiencing the ups and downs of getting back to normal after the pandemic.
The unemployment rate, which hit 8.1% in 2020, is projected to fall to 5.5% this year and then decline to 3.8% by 2023, remaining there through the decade, or slightly higher than in pre-pandemic 2019. Other forecasters project somewhat lower employment growth. The White House projects unemployment falling to 3.8% in 2031, while the CBO, Blue Chip and Federal Reserve see it ranging from 4.1% to 4.3%.
Middle-income tax cuts assumed to expire. Although Biden has pledged not to raise taxes on anyone making less than $400,000 a year, his budget assumes that the Republican-backed tax cuts of 2017 would be allowed to expire at the end of 2025. Those tax cuts affected income tax rates, the standard deduction, the child tax credit and more. While there is still time to revisit the issue, extending those tax cuts could cost more than $2 trillion over a decade, according to prior estimates.
Gov’t revenue would increase. Biden’s tax policies would bolster federal revenue by about $3.6 trillion over the decade. Most of that increase — almost $2.3 trillion — comes from higher corporate taxes, the budget shows. Biden has called for increasing the corporate income tax rate from about 21% to 28%, garnering more collections from overseas profits, eliminating fossil fuel preferences and more — Biden budget aims to raise $35 billion over a decade from cutting fossil fuel tax benefits. Among the benefits Biden hopes to cut are those received by the fossil fuel industry for enhanced oil recovery, a method of extraction that allows companies to get to fuel they wouldn’t be able to otherwise reach, and another for “intangible” costs like wages, repairs, supplies and other expenses that are needed for oil and gas drilling. He’s also targeting a provision that allows oil and gas companies to deduct as much as 15% of the revenue they get from a well.
Comments: While budgets proposed by presidents typically have little chance of being enacted in largely intact form by Congress, Biden’s budget could be different. Even though Democrats have but a narrow majority in the House and a one-vote advantage — with the vice president breaking a tie— in the Senate, they could potentially enact much of the Biden agenda through the budget reconciliation process without needing GOP support. Reconciliation allows spending and tax-related legislation to pass with a simple majority in the Senate rather than the usual 60 votes. Still, appropriations bills will need to garner the typical 60 Senate votes to advance, and Republicans were quick to dismiss Biden’s package.
Links to budget documents (for USDA links see next item):
Link to overall budget requests.
Link to budget fact sheet.
— Biden’s budget request for USDA: a lot of dollars for climate change. Overall, the budget requests $27.9 billion in discretionary funding for USDA, including the Forest Service. The amount is slightly higher than the $27.8 billion request contained in a budget outline released April 9. The requested amount would be $4 billion or 16.7% more than the enacted level of $23.9 billion for fiscal 2021. Link to overall USDA budget document. Link to additional USDA budget info. Link to Commodity Credit Corporation info. Link to FSA info.
The administration calls for several USDA agencies to devote a share of funding to climate research or establishing baselines against which progress in reducing greenhouse gas emissions will be measured. For example, of the $886.3 million in discretionary funding requested for the Natural Resources Conservation Resource Service (NRCS), $4 million would go toward a second assessment by the agency of the carbon levels stored in U.S. soil and the soil management practices used to achieve those levels. The assessment would update one done in 2010. The fiscal 2022 request would be above the fiscal 2021 enacted level of $832.7 million and include more money for technical assistance to farmers, ranchers and other private landowners to help them in adopting conservation practices.
The budget directs the Farm Service Agency (FSA) use $15 million of the requested $1.47 billion to fill current and expected vacancies among its farm loan officers and the network of county offices. Lawmakers of both parties and scores of farmers and ranchers have complained about short-staffed offices.
The Office of the Assistant Secretary of Civil Rights, which is expected to be more active under the Biden administration’s goal of equity in the federal government, would get a budget boost to $29.3 million, up from $22.8 million in fiscal 2021.
With concerns about wildfires on the rise, the administration is requesting $8.4 billion in discretionary funding for the Forest Service, a $1 billion increase from the fiscal 2021 enacted level, according to the budget justification released by the agency.
On the mandatory side, the funding request for nutrition programs is clearly evident. The administration is requesting $105.8 billion, including a $3 billion reserve fund, for the nation’s largest domestic food aid program, the Supplemental Nutrition Assistance Program (food stamps). Appropriators provided $114 billion for the program in fiscal 2021. USDA said the decline represents the expected expiration of a temporary boost in benefits. USDA said the request will be enough to aid an estimated 45.4 million people a month in fiscal 2022, a projected rise from 43.9 million people a month and is in line with past lags in demand after an economic downturn.
Child nutrition programs, the largest of which are the national school lunch and breakfast programs, would receive a $1 billion plus bump up from $25.1 billion in fiscal 2021 to $26.9 billion in fiscal 2022.
The administration includes legislative proposals to make it easier for high poverty elementary schools to qualify to provide free meals to all students, and to provide additional meal reimbursement funding to all community eligible schools. The total request for that is $1.2 billion.
House Ag chairman likes USDA’s budget proposals. “I applaud the focus within President Joe Biden’s budget on important investments in rural America and our food systems, particularly in rural broadband,” said Ag Chairman David Scott (D-Ga.). “I appreciate the focus on how USDA can best work with farmers and ranchers to implement climate smart practices and the research dollars targeted to ensure that our ag and forestry producers and rural communities can adapt to climate change. I am also happy to see urban agriculture as a priority in this budget and the specific steps taken to ensure these producers can utilize and access USDA programs.” Scott continued, “I am tremendously supportive of the funding proposed to ensure that our socially disadvantaged producers are fully involved in climate smart agriculture and our Farm Service Agency assistance as well as the technical assistance to ensure market access for small and minority-owned ag operations and processors”
Comments: No proposed cuts appear slated for the farm bill and crop insurance… and those are good things to ponder. Senate and House Democratic Budget Chairmen will release their budgets and once approved by each chamber, will be reconciled into one budget from which Democratic lawmakers will be able to commence another budget reconciliation process whereby they can pass an infrastructure bill on party-line votes in both chambers, bypassing the 60-vote requirement in the Senate.
BIDEN ADMINISTRATION PERSONNEL
— Senate confirms Biden's top scientist. The Senate confirmed President Biden’s nominee to lead the White House Office of Science and Technology Policy, Eric Lander, in a voice vote on Friday. Lander will be the first person at the position since Biden elevated it to Cabinet level and is the last member of Biden’s Cabinet to be confirmed.
ENERGY & CLIMATE CHANGE
— Next big growth for oil companies: biofuels? For U.S. oil majors, the most promising areas for investment might not be directly in solar or wind, but in areas where they have transferable skills, like using petroleum refineries to process biofuels, or enhancing their carbon-capture technology, says some analyst. Electric-vehicle output is rising, governments have emphasized decarbonization and in some cases solar and wind energy is cheaper than fossil fuels.
— Psaki defends gas prices as 'well in line' with recent decades. White House press secretary Jen Psaki on Friday said that gas prices have “stabilized” and defended them as “well in line” with recent decades as they reached the highest prices since 2014 ahead of Memorial Day weekend. “As Americans are hitting the road, they are paying less in real terms for gas than they have on average over the last 15 years — and they’re paying about the same as they did in May 2018 and May 2019,” Psaki said in a statement. “While prices have increased from the lows last year — as demand drastically dipped — prices at just about $3 per gallon are still well in line with what they’ve been in recent decades,” she added. The White House official also noted that prices have “stabilized” after climbing earlier this month and noted that gas supply has also returned to normal after the temporary shutdown of a major pipeline earlier this month prompted panic buying.
Details: Gas prices reached their highest price since 2014 on Friday, costing an average of $3.04 per gallon nationally, according to AAA. However, according to the organization, the price is much lower than gas prices were on Memorial Day weekend in 2014, reaching $3.65 per gallon.
LIVESTOCK, FOOD & BEVERAGE INDUSTRY
— U.S. food industry notes COOL concerns in Senate innovation bill. The U.S. supermarket industry expressed concern about a country-of-origin labeling (COOL) amendment in a Senate bill (from Sens. Tammy Baldwin, D-Wis. and Rick Scott, R-Fla.) aimed at countering China’s economic power, the U.S. Innovation and Competition Act. The Food Industry Association said in a letter to the Senate Agriculture Committee that the amendment, added in another committee, would impose “time-consuming and costly new obligations” for food retailers.
Details: The amendment would require online retail products to provide country of origin information as part of the “internet website description of a product.” Link to more on the Baldwin/Scott amendment.
Next step: A vote on the package was set to occur Thursday night until Sen. Ron Johnson (R-Wis.) objected to a manager’s package to revise the underlying bill, citing he had not had enough time to read the revisions. The Senate on Friday delayed a vote on the legislation, after more Republicans argued that the bill was being rushed through without full debate. The final vote on the bill, aimed at addressing rising competition from China and other nations, is now scheduled for June 8, after lawmakers return from their Memorial Day recess. Senate Majority Leader Chuck Schumer (D-N.Y.), who is pushing the innovation measure, announced the rescheduling of the vote until June 8 as part of a deal that also included a vote Friday on a commission to probe the Jan. 6 riots at the U.S. Capitol, which Republicans blocked. The innovation legislation still faces challenges reaching a final deal with the House.
Comments: Sen. John Boozman (R-Ark.) is trying to get food exempted from the Democratic-pushed Senate amendment. The sleeper issue of this is that if the amendment is successful and food is not exempted, it would bring the Energy and Commerce Committee and the FTC into this space relative to food, which before had been in the jurisdiction of the Ag Committees.
— Most dairy cows are kissing cousins, and scientists are worried. Selective breeding helps Holsteins produce 94% of the nation’s milk but can also lead to the proliferation of some diseases. Link to WSJ article.
CORONAVIRUS UPDATE
— U.S. moves toward coronavirus herd immunity. Some areas of the United States may be close to reaching herd immunity, even if the country as a whole is still far off. Most experts say 80% of the population must be immune to achieve herd immunity, which makes the U.S., with only 40% of the population fully vaccinated, still a long way off. Assuming that actual cases are three times higher than confirmed cases and that half of those have also been vaccinated, about 66% of the population in Connecticut may be immune and 65% in Massachusetts. While some areas may be nearing herd immunity, others will continue to be vulnerable because of lower vaccination rates.
— Employers can require Covid-19 vaccine under federal law, new guidance states. U.S. employers could require all workers physically entering a workplace to be vaccinated against Covid-19, the federal government said Friday. The Equal Employment Opportunity Commission issued updated guidance stating that federal laws don’t prevent an employer from requiring workers to be vaccinated. But in some circumstances, federal laws may require the employer to provide reasonable accommodations for employees who, because of a disability or a religious belief, aren’t vaccinated. The new guidelines also say that federal laws don’t prevent or limit incentives that can be offered to workers to voluntarily take the vaccine. And employers that are administering vaccines to their employees may also offer incentives, as long as the incentives aren’t coercive.
POLITICS & ELECTIONS
— GOP senators block legislation seeking probe of Capitol riot. The Senate as expected failed to muster the 10 Republican votes needed to clear a procedural hurdle for the legislation, dashing hopes that a comprehensive investigation of the Jan. 6 insurrection can happen outside of Congress’s political differences. Some observers look for far-left Democrats in both chambers to use the filibuster hurdle to go-it-alone on infrastructure and other initiatives. But one GOP senator, Lisa Murkowski (R-Alaska), told reporters that the decision facing senators is about more than “just one election cycle.” Murkowski said Republicans who oppose the commission “don’t want to rock the boat… they don’t want to upset. But again, it’s important that there be a focus on the facts and on the truth. And that may be unsettling, but we need to understand that.” The House last week passed the legislation that would establish an independent bipartisan commission, with 35 Republicans joining all Democrats in supporting the measure. Murkowski was one of six GOP senators to break ranks and vote with Democrats to move ahead.
OTHER ITEMS OF NOTE
— Postal Service raises rates, sending the price of a first-class stamp to 58 cents. The new rate structure announced Friday is the latest installment of Postmaster General Louis DeJoy’s expansive restructuring plan, which will codify slower mail delivery and usher in significant service and operational cuts to erase a projected $160 billion in liabilities over the next decade. And more rate increases could be on the way. The Postal Service on Friday raised prices exclusively for “market dominant” mail, or items such as letters, postcards and marketing mail over which it maintains a monopoly by law. The agency has signaled it will raise prices on other products — including package shipping, on which it competes fiercely with UPS, FedEx and Amazon — in the coming months.
