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Daily Brief - Manchin’s “Ho Ho No” sinks stocks (Dec 21, 2021)

It’s over. Sen. Joe Manchin’s refusal to support the Build Back Better plan dooms it in the Senate and means the bill won’t become law. There will be attempts to resurrect it - Sen. Schumer already announced the Democrats are pushing ahead in January - but the final version is likely to be substantially trimmed down.


This outcome isn’t exactly shocking.


A poll last month showed 74% of West Virginia voters oppose the Build Back Better Act. This might seem surprising for a state where 32% of residents’ personal income came from government checks. But West Virginia is a coal country and this was a very non-coal-friendly bill.


Unlike President Biden’s fast dropping popularity, Sen. Manchin has a 60% approval rating in one of the reddest U.S. states. That he should oppose the bill so heavily out of favor in his home state is hardly surprising.


Bad for Tesla, good for taxes


Dooming the bill also doomed the planned tax hikes. Funding the bill was controversial from the start. While the original tax levies (raising the top income-tax rate to nearly 40%, while boosting capital gains rates to 25%) were abandoned, others remained.


A minimum tax rate of 15% was planned on corporations whose annual income averaged above $1 billion in the last three years, affecting some 200 companies. More controversially, an excise tax of 1% would have been imposed on stock buybacks by public companies.


On the whole, those are both good for stocks. Not all of them, however.


Anything with a hint of green was taking it on the chin Monday morning. The signature legislative package contained roughly half a trillion dollars of support for various forms of cleantech, the biggest federal commitment to the energy transition by far.


The economy will be alright …


Goldman Sachs was quick to cut back its outlook for US growth. But the changes were marginal. “While BBB in its current form looks unlikely, there is still a good chance that Congress enacts a much smaller set of fiscal proposals dealing with manufacturing incentives and supply-chain issues,” said the economists.


Oh, and lest we forget: The Build Back Better Act included a massive $79 billion IRS appropriation to strengthen its enforcement activities. Looks like the hiring of new auditors won’t happen, after all.