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Washington Policy Analyst Ed Mills | Hidden Fiscal Stimulus in the US

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Washington Policy Analyst, Ed Mills returns to the podcast and has wide-ranging discussion with host Chris Cooksey, including:

How bills passed in the last couple of years are only starting to hit the economy. We are talking about Inflation Reduction Act, Chips and Science Act and the Bipartisan Infrastructure Bill. How they could be under threat of repeal in a Trump Administration/how they should also be viewed in the lens of national security.

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Chris Cooksey: Hello and welcome to The Advantaged Investor, a Raymond James Limited podcast, a podcast that provides perspective for Canadian investors who want to remain knowledgeable, informed, and focused on long term success. We are recording this on January 29, 2024. I'm Chris Cooksey from the Raymond James Corporate Communications and Marketing Department, and today, Washington Policy Analyst Ed Mills returns to the podcast. Today he and I will be discussing the hidden fiscal stimulus in the United States. There have been a bunch of bills passed in the last few years. And they're only starting to hit the economy now, so Ed and I will start discussing that and what that could mean. We're talking about things like the Inflation Reduction Act, Chips and Science Act, and the Bipartisan Infrastructure Bill. How could they be under threat of repeal under a Trump administration, and how should they be viewed in, in the lens of national security? Ed frequently appears in media outlets, including the Wall Street Journal, and New York Times, and Washington Post, American Banker, and CNBC, so he's finally hitting the big time on the Advantaged Investor! I am excited to chat with him again, as it's always interesting. Welcome back to the Advantaged Investor, Ed. Thanks for taking the time today.

Ed Mills: Well, Chris, thanks for having me back.

Chris Cooksey: Awesome. I hope you're doing great. This is episode 88 for the podcast, so excited to get going here. As I mentioned off the top there have been a lot of legislation in terms of supporting the economy coming out of COVID and of course, dealing with the inflation situation that has arisen and also some national security events around superconductors and the computers that I don't know much about. We do know that economic legislation can take a while to enter the economy, so maybe we can just speak about that to begin with.

Ed Mills: I think what's interesting that's happening in DC, is that when we look at how D.C. normally works, is that we respond to a crisis or deadline. And in past, big crises think about COVID. That's when we passed major legislation to stimulate the economy. Going back to the financial crisis coming out of that, we had a trillion-dollar stimulus bill in the United States at the depths. One thing we learned is that the passage of the bill is many ways just the start, and it takes one to two years from passage to seeing an impact in the economy. At the beginning of the Biden administration, there was a huge push to, quote, build back better. This is part of what the Biden team calls the Bidenomics, and the bills that you mentioned, the Inflation Reduction Act, the Bipartisan Infrastructure Bill, the Chips and Science Act, all got passed. At the height of an economic cycle, they seem like old news to a lot of investors or people who have been paying attention to U. S. politics, but that old news is going to be things that hit the economy this year. A good example of that, in the Chips and Science Act, there's $54 billion worth of grants. Those grants, as of today, less than $200 million has gone out the door. In the next month or two, we expect announcements for tens of billions of dollars to go to semiconductor companies to build semiconductors here in the United States and bolster the national security of the United States and of North America.

Chris Cooksey: That's interesting then. Is this more because they delayed them because the election is coming up? Or is this more, it just takes time?

Ed Mills: It just takes time. I mean, if the market goes at 100 miles an hour on a good day, D. C. is going 10 miles an hour. I'm not going to convert that to kilometers - but you get the point. And it's just, you know, the passage of the bill starts the process to do the regulation, which starts the process to kind of make a determination. On the bipartisan infrastructure bill, even there, we've had about 60 percent of the money announced. But less than 20 percent of that money actually has been spent because it's a process. You have to give the money to the states and the states have to find the contractor. The contractor has to build out the plans, get those approved. On the Inflation Reduction Act, a lot of it is tax policy and the Internal Revenue Service, the IRS, had to develop that tax policy. It is now starting to hit. And so I think the way I viewed this is that during COVID, we really made sure we supported the household, especially moderate- and low-income households who had direct economic impacts of COVID over the last couple of years. You know, we talk about a fed funds rate that has been rapidly rising and, you know, kind of causing extra debt service burden in the United States, I look at that as a hidden fiscal stimulus. In my money market account, I'm getting five and a half percent. You know, that's a trillion dollars of stimulus going to savers for the first time since kind of pre-financial crisis.

And now as we come into 2024 and beyond where you're seeing a huge support for the economy, is with money going to corporations so that they can expand their investments and new plants, hire new workers. And if people are employed, if construction projects are happening in the United States, it's hard to see kind of the recession that people have feared. Or if it comes, it's going to be softened. The last thing I'll say is that even with that in Congress, we're debating whether or not we give more money for a defense supplemental, new tax credits to businesses to even get even more benefits, or a child tax credit expansion, more direct income into the bank accounts of low income Americans, where that child tax credit is going to be disproportionately targeted on families making less than $20,000 a year, so you know, there's a view that the financial condition of the United States is going to cause us to pull back in what we're spending, but the spigot is still on. You know, D. C. continues to spend, and that spend, I think, for the near and medium terms, is going to support the economy.

Chris Cooksey: All right, so I guess one of the big situations out there is we get to go through the end of another election cycle this year. It looks like Nikki Haley is not going to be able to stop Donald Trump from becoming the GOP nominee. And of course, we know Joe Biden has said he will be the Democratic nominee, which makes it two fairly elderly gentlemen running for the presidency. So how could a Trump win here maybe derail things?

Ed Mills: So you're going to see kind of after the election, one of the biggest focuses is the Trump tax cuts that passed in 2017, and expire in December of 2025. To extend that's anywhere between 3. 5 to 4 trillion dollars. And Democrats are going to say, you need to pay for that. Republicans will come back and say, all right, we have great pay fors, all the things that you just passed, let's repeal those. And that is going to cause, from a market perspective, a concern that some of these subsidies that get major benefits to corporations that are traded, like industrials on different exchanges that could kind of cause some sentiment impact.

When I talk to Republicans on Capitol Hill, they think a repeal of this is probably Obamacare 2.0. What do I mean by that? Republicans for years have run and said that if they get in charge, that they are going to repeal the Affordable Care Act, Obamacare, that expanded healthcare in the United States. They keep on saying they're going to do it. But they're not able to get the votes, because guess what? So many of these construction projects, new plants, new businesses are in Republican states and Republican congressional districts. So trying to get members of Congress to vote to put their constituents out of a job. Good luck with that.

Chris Cooksey: That makes sense. Now part of the budgetary process right now, I think, pretty much all over the world is the support for what's going on in the Ukraine and weapons and military there, as well as what's going on in Gaza. So how does Trump change that sort of dynamic?

Ed Mills: Well, we're seeing his influence very much in the debate over funding for a defense supplemental. What we have heard from Republicans is that there was some skittishness about kind of a blank check or an open-ended commitment. What is the end goal? But that had been seemed to be moved to the side when it was like, not just a defense bill, but more of a national security bill. And a lot of Republicans were saying, if we're going to talk about national security, we have to talk about the border between the United States and Mexico. And so if they could have a package that includes major changes to border policy, more money for border security, in addition to an aid package that supports Ukraine, Israel, and Taiwan, that could get across the finish line. Now that President Trump has established himself as the very likely Republican nominee, you see the fact that Republicans seem to get a little bit of cold feet and say that if they were to get a border package, it has to go further than what's been negotiated. And if they go further, they lose the Democrats support. So that fragile flower of consensus comes apart, and this is what happens sometimes in D.C., especially during election season, is that you'd rather keep the issue politically than solve the problem. Because if you solve the problem, it neutralizes one of the key issues that Donald Trump is trying to litigate in terms of trying to get a second election victory for presidency.

Chris Cooksey: And does his legal woes, that doesn't seem to influence anything at this stage, is that a fair statement?

Ed Mills: His legal woes are unlikely to stop him from being able to be on the ballot in November. Now, the Supreme Court is taking up a case where the Colorado Supreme Court kicked him off the ballot, that was a 4-3 decision in Colorado, all seven of the justices on the Colorado Supreme Court were appointed by Democrats. The Supreme Court's expected to say, unless Donald Trump has been convicted of insurrection, that under the United States Constitution, he's allowed to be on. We've actually, about a hundred years ago, there was a candidate from a third party that ran for presidency, got more than a million votes from jail. I'm not presupposing the kind of outcome of any of these elections. I'm just saying that the U. S. Constitution says, you have to be 35, a U.S. citizen, and there is one provision that could remove you for engaging in insurrection. That's where there is that debate in the Supreme Court in Colorado, as well at the U.S. Supreme Court. But generally speaking, from a legal perspective, people are not thinking this is going to keep him off the ballot. Where people are more debate is that if he is found to be convicted of a felony, there is some polling out there that that says that could weaken his support among independents. Is that going to be something that prevents him from winning the election? I think it's really, quite honestly, too early to tell. He is someone who people have said, well, if this happens, his support will change. Well, a lot of those things have happened, and he still won the presidency in 2016 and he came close in 2020, and it looks like he's going to be the nominee here in 2024.

Chris Cooksey: Okay. Now, from a Washington perspective, often from the outside, it appears the Senate Republicans and the House Republicans are two very different groups of people. Is that an accurate statement? And maybe you can just expand a bit on that.

Ed Mills: Yeah a senator represents the entire state where a member of the House represents his or her individual district, where there are 435 of them. And so sometimes the constituency from that kind of group of about 650 to 700, 000 is very different than multiple millions in the state. So generally speaking, we've seen over time, historically in the United States, that the House is more partisan because they are reflective of those districts, where the Senate, usually, represents a more moderating view. In the original passage of the U.S. Constitution, they talked about the Senate being the saucer to cool the tea that gets spilled over out of the House. Kind of a little anachronistic example, but yes, that's in some ways exactly the way the system was supposed to be done. House gets elected every two years, Senate every six years. The House is closer to the kind of electorate because they represent a smaller group and have to be re-elected each election.

Chris Cooksey: All right. Now, lastly, is there anything out there that maybe - you know we had an analyst up here who used to talk about how you have to watch the story on page 16, moving into page 1 - is there anything sort of in the background that's not maybe getting a lot of publication right now or being talked about that you got your eye on?

Ed Mills: The geopolitical risk that's out there. And yeah, I think that this is something that can go in either direction. When we had a pollster that we work a lot with on to discuss the Iowa caucuses that happened at the beginning of January, one thing that he said that really struck with me was that when asking Trump supporters why they support President Trump in 2024, they said that he, quote, represented a return to normal and, you know, he said, look, the adjective normal is not usually used to describe the four years of the Trump presidency. What were those voters talking about? They were talking about three things. One, inflation under Biden, the border situation which we talked about, and third, kind of the wars that are going on across the world. And so with the wars, the more there is kind of geopolitical risk, there is a direct domestic political cost to Biden's re-election, as well as, real costs to oil and defense. You can come up with humanitarian issues, a whole list of where that impacts. On the flip side, if Biden knows that there is a huge drag to his re-election because some of these geopolitical risks, you look at the issue between Ukraine and Russia - Is that going to force the Biden administration to put more pressure on a potential ceasefire there? A ceasefire in Israel versus Hamas? How this goes, you can come up with a way in which, the Biden administration, which has sought to contain what's happening in the Middle East, they could continue to grow versus being contained. You don't really have a lot of control of this, but if there is a desire for control from a, just a pure domestic political lens, you would seek to lower and kind of try to end some of this geopolitical tension in 2024. That could be a nice market positive. Flip side, if you can't control it, if it expands that certainly is something that politically would weigh on the re election of Joe Biden. Is it a deciding factor? We don't know yet.

Chris Cooksey: Well, I just want to thank you for taking the time today Ed, always very informative and I look forward to your next visit.

Ed Mills: Likewise. Thank you so much.

Chris Cooksey: Chris Cooksey: Reach out to us at Subscribe to The Advantaged Investor on Apple, Spotify, or wherever you get your podcasts. Please contact your advisor with any questions you have. On behalf of Raymond James and The Advantage Investor, thank you for taking the time to listen today. Until next time, stay well. This podcast is for informational purposes only. Statistics and factual data and other information are from sources Raymond James Limited believes to be reliable, but their accuracy cannot be guaranteed. Information is furnished on the basis and understanding that Raymond James Limited is to be under no liability whatsoever in respect thereof. It is provided as a general source of information and should not be construed as an offer or solicitation for the sale or purchase of any product and should not be considered tax advice. Raymond James Advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax related matters. Securities related products and services are offered through Raymond James Limited. Member of the Canadian Investor Protection Fund. Insurance products and services are offered through Raymond James Financial Planning Ltd, which is not a member of Canadian Investor Protection Fund.