The debate regarding the US debt limit heats up with Republicans led by Mitch McConnell saying that they will not agree to an increase in the debt limit without spending cuts. Democrats are saying this must be a clean bill. There is also conversation about a Continuing Resolution for the budget, which also needs to be enacted by October the 1st. These are two significant matters, as I have indicated in earlier commentary, that need to be resolved as the prospect of a default or shut down by the US Government is extremely problematic on many levels. This is a dance that has been going on for years, which really intensified during the onset of the Tea Party movement, and has continued through to this day. Much of this is not an intellectual debate, or even a discussion that contains a lot of facts, but this is a play by Republicans to their base and Democrats to their base. Obviously, the end game here is you need to extend the debt limit, otherwise there will be a significant economic consequence to the United States and potentially to the world. This comes to a head at 12:01, this Thursday.
Justin Trudeau’s Liberal Party overcame the Conservatives garnering 155 seats which is slightly less than a majority, with the Conservatives landing 121, the Quebecois 33 and NDP at 27. With either the Quebecois or the NDP joining the Liberals, they will have a significant majority. This creates enormous issues for the leader of the Conservative party who predicted victory, and with a defeat, there will be a leadership struggle that ensues. In essence, very little will change for the operation of the Canadian Government unless the NDP takes unanticipated stances on issues that need to be resolved before a coalition government can be formed.
The labor market continues to be somewhat mystical. The Bureau of Labor Statistics reports that there are 8.4 million potential workers, and 10.9 million open jobs, yet those jobs are not being filled. The number of “Help Wanted” signs that you see in your daily travels, whether at restaurants, bars, gas stations, golf courses, etc. are facing a situation that was certainly in existence pre-COVID, but has been exacerbated by it. Employees are asking – is the job desirable, and does it pay enough to make it worthwhile taking? In addition, employers face the issue of scheduling practices that don’t meet the needs of workers, for instance, someone who has school age children and needs to deal with daycare before and after school, or an ailing parent that needs consistent assistance. How, or do you accommodate those employees?
Democrats in the Senate are debating how to raise taxes to support their $3.5 trillion bill. Currently the estate tax is in the crosshairs with most of the discussion focusing on whether or not the long-standing step-up in basis at the time of death will be modified in some fashion. It is important to understand that the step-up was created when the estate tax applied to many more people than it does now with the current level of exemptions, and it was to prevent, if you will, double taxation in a circumstance where estate tax was paid and then subsequently income tax had to be paid when the asset was liquidated by the survivors/beneficiaries. In addition, in today’s environment there is a minimum number of estates that are now taxed on a comparative basis, and thus, the philosophy behind the step-up in basis has somewhat eroded. One of the policies under discussion is that the step-up in basis would be eliminated and that tax would be paid upon the liquidation of the assets with some exceptions or other accommodations being made for small businesses and farms. There exists today a provision of the Internal Revenue Code (Section 2032A) which allow small businesses and farms to value their assets based upon current use not highest and best use and any tax due can be paid over 10 years (Section 6166). Those provisions could be extended to include capital gains taxes quite easily, as the concept is already in place.
Three US Senators (from Western cattle states) introduced a bill entitled the “Market Economy Sourcing Act”, which is essentially a bill which requires the declaration of the country of origin of beef. This has been an ongoing issue since early in the last decade about whether or not that has the impact of reducing the likelihood of the importation of Canadian and Mexican beef. Will US buyers care enough to only select US beef, or are they going to be more impacted by the price of that beef. Unfortunately, that is not something which does much to protect us against China, but does much to interrupt our USMCA trading relationships.
There was a substantial kerfuffle arising out of the submarine deal with Australia, engineered apparently by the British and Americans which scuttled a submarine deal between France and Australia. France has recalled its ambassadors to the US and Australia, and there is much being reported about this in Europe, not quite so much here in the United States. It is important to note that the French deal was for diesel driven submarines, while our deal with the Australians is for nuclear driven submarines. It strikes me that although it may have offended the French, we are better off with the Australian Navy having nuclear submarines than diesel submarines for a wide variety of strategic and tactical reasons. I am sure this will blow over. To add to the amusement, are the comments by the French in terms of how they view the British and their impact on the world stage - which can be summed up as “not much”.
The White House announced that it is going to open travel to all international fully vaccinated travelers in early November. The most important omission from this announcement was, of course, the fact that the land borders between the United States and Canada, as well as Mexico will remain closed. Canadians and Mexicans will still be able to fly into the United States, or at least Canadians will, as they have since the onset of the COVID restrictions. There does not appear to be any plan in place for opening up the land borders even though Senator Tester from Montana is diligently pushing the administration to move in that direction. It doesn’t seem like much is going to happen in the near term, very unfortunate.
The Biden administration has had a series of bad outcomes, some self-inflicted, but others out of their control. Hopefully he rights the ship.
Jobless claims were 351,000 this past week, increasing the rolls of the unemployed. As we noted earlier, the labor market remains mystical.
Bill Owens is a former member of Congress representing the New York 21st, a partner in Stafford, Owens, Piller, Murnane, Kelleher and Trombley in Plattsburgh, NY and a Strategic Advisor at Dentons to Washington, DC.
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