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Monday, May 31, 2021

India’s Serum Institute to raise AstraZeneca COVID-19 vaccine output in June

 The Serum institute of India will raise production of the AstraZeneca COVID-19 vaccine to about 90 million doses in June from about 65 million a month now, a company spokesman told Reuters on Monday.

China reports first human case of H10N3 bird flu

 A 41-year-old man in China's eastern province of Jiangsu has been confirmed as the first human case of infection with the H10N3 strain of bird flu, China's National Health Commission (NHC) said on Tuesday.

The man, a resident of the city of Zhenjiang, was hospitalised on April 28 after developing a fever and other symptoms, the NHC said in a statement.

He was diagnosed as having the H10N3 avian influenza virus on May 28, it said, but did not give details on how the man had been infected with the virus.

H10N3 is a low pathogenic, or relatively less severe, strain of the virus in poultry and the risk of it spreading on a large scale was very low, the NHC added.

The man was stable and ready to be discharged from hospital. Medical observation of his close contacts had not found any other cases.

Many different strains of avian influenza are present in China and some sporadically infect people, usually those working with poultry. There have been no significant numbers of human infections with bird flu since the H7N9 strain killed around 300 people during 2016-2017.

No other cases of human infection with H10N3 have previously been reported globally, the NHC said.

As Japan Loses Training Camps, Olympics Buzz Fades

 Ahead of the Tokyo 2020 Olympics, the Japanese city of Kamo spent 70 million yen ($640,000) on horizontal bars, gymnastic mats and other upgrades to training facilities for 42 Russian gymnasts and coaches who now won't be coming.

The team scrapped plans for pre-Olympics training in Japan because of the resurgent COVID-19 pandemic, local officials said. Officials in the northwestern city of 25,000 say they regret the lost opportunity to host the team, even more than the money spent.

The Games, now less than eight weeks away after being delayed by a year, have been upended by COVID-19. Foreign spectators will not be allowed, and more than 100 municipalities have cancelled plans to host overseas teams.

"Local kids who could be future star gymnasts were disappointed to miss the opportunity to meet the Russian gymnasts," Kamo official Hirokazu Suzuki told Reuters.

Although there is little Olympic buzz in host city Tokyo, which is under a state of emergency because of the pandemic, in smaller places like Kamo, which had been planning the camp since 2019, the disappointment is perhaps more palpable.

Most of the cancellations so far have been in the 500 or so municipalities involved in the Olympics "host town" programme, in which foreign teams base their pre-Games training in Japanese facilities.

In some cases, such as Australia's judo team, the teams pulled out over safety concerns. In others, such as a delegation from Cuba set to stay in Higashimatsuyama city north of Tokyo, the municipalities decided not to host.

Organisers say the Games will be held safely. Several opinion polls have shown most Japanese people want the event to be cancelled or postponed again.

The national government earmarked 13 billion yen for municipalities to host training camps while imposing coronavirus measures, officials said.

Municipalities apart from Tokyo were expected to see a boost of about $110 billion through 2030 from the Games, the Tokyo Metropolitan Government said in a March 2017 estimate.

"Training camps will give a huge impulse to the economies of towns and cities where they are held, but that is being lost," said Katsuhiro Miyamoto, an emeritus professor of economics at Kansai University who studies the economic impact of the Olympics.


Officials in Narita, east of Tokyo, were caught by surprise when the United States' track and field team informed them it had decided to pull out of planned a training camp.

About 120 athletes and staff, including star sprinter Justin Gatlin, were set to come for the camp, said Kentaro Abe, a municipal official in charge of host town projects.

Narita's sports relationship with the United States started in 2015, when it hosted the U.S. training camp before the world athletics championships in Beijing.

"It doesn't mean that our efforts to promote sport exchange between Japan and the United States came to nothing," Abe told Reuters, adding that city would look to continue the relationship.

In the central city of Toyota, home to the carmaker and Olympic sponsor Toyota Motor Corp, Canadian swimmers and coaches pulled out of pre-Olympics training scheduled to be held over about three weeks in July.

Such cancellations could add to the pain for towns and regions that are already smarting from a drop-off in tourism.

At her hotel in western Izumisano city, Eriko Tsujino worries she could lose about 60 bookings from Mongolian and Ugandan national teams if the athletes ditch plans to train in Japan.

"If they were to cancel at the last minute, it would cause a huge loss," she told Reuters, saying the bookings had still not been confirmed because of the state of emergency.

After the Russians cancelled their camp in Kamo, officials there decided at the last minute to host a much smaller Portuguese delegation of one female artistic gymnast and two accompanying staff, Suzuki said.

But the city also sought to keep friendly relations with the Russian gymnasts, asking kids and other locals to show them support with making video messages and letters.

Sinopharm's Wuhan affiliate boosts COVID-19 shot annual capacity to 1 billion doses


A Wuhan-based affiliate of China National Pharmaceutical Group (Sinopharm) said the start of operations at a new factory will raise the annual production capacity of its COVID-19 vaccine to at least 1 billion doses.

The Wuhan Institute of Biological Products made the announcement in a statement released late on Monday through social media. It did not specify when it will operate the factory at full capacity.

Still, the announcement marks a step toward state-backed Sinopharm's annual capacity target of 3 billion doses for its COVID-19 vaccines.

The Beijing Institute of Biological Products, another Sinopharm affiliate whose shot gained emergency-use approval from the World Health Organization, has a factory with annual capacity of 1 billion doses and is also building a new facility.

China has approved four COVID-19 vaccines from domestic makers Sinopharm, Sinovac Biotech Ltd and CanSino Biologics Inc for general public use, and three other vaccines for emergency use.

Sinovac, whose COVID-19 vaccine capacity is 2 billion doses per year, on Tuesday said it has supplied over 600 million doses at home and abroad as of the end of May.

EU plans to lift Covid quarantine rules for vaccinated from 1 July

 The starting pistol has been fired on a “relaxing” summer holiday season for people living in the EU from 1 July, as Brussels proposed lifting all quarantine obligations on those who are fully vaccinated against Covid-19.

From Tuesday, a system will be ready to allow member states to issue a digital Covid passport to citizens proving their status and freeing them up to travel.

With infection rates on a downward trajectory across the bloc, a deadline has been set for 1 July for all 27 EU countries to accept the documentation as sufficient proof of vaccination for restrictions to be lifted.

A negative test or proof of having recovered from infection will confer the same rights on the holder of a certificate. The European Commission has proposed a standard validity period for tests: 72 hours before travel for PCR tests and 48 hours for rapid antigen tests.

The children of those who are fully vaccinated will also be exempt from quarantine under the proposal and as a minimum no one under six years of age will need to take a test. Many countries are likely to set a higher age threshold for the testing of minors.

The intention is that fully vaccinated UK travellers will benefit from the Covid passport system but, in light of the emerging variant first identified in India, EU governments may still impose restrictions on people arriving from the UK including testing and quarantine obligations.

From Monday, entry to France has been limited to EU nationals, French residents, and those travelling for essential purposes. People arriving from the UK must have tested negative and quarantine for seven days.

While a sudden deterioration in the Covid infection rates in the EU could lead to the use of an “emergency brake” on the lifting of restrictions within the bloc, the intention is to reintroduce free movement as the summer tourism season begins.

Ursula von der Leyen, the commission president, tweeted: “Europeans should enjoy a safe and relaxing summer. As vaccination progresses, we propose to gradually ease travel measures in a coordinated way with our common tool: the EU digital covid certificate. It will bring clarity and predictability as we resume free travel in the EU”.

In addition to the lifting of quarantine on the fully vaccinated from 1 July, the commission has proposed that anyone coming from a “green” region of the EU, such as west Finland, where less than 25 cases per 100,000 people have been recorded during the previous 14 days, should be entirely freed from restrictions.

Those who are not fully vaccinated coming from an “orange” area, with a 14-day cumulative Covid-19 case notification rate of 75, will need to take a pre-departure test.

Didier Reynders, the European commissioner for justice, said: “The last weeks have brought a continuous downward trend in infection numbers, showing the success of the vaccination campaigns across the EU.

“In parallel, we are also encouraging affordable and widely available testing possibilities. In this context, member states are now slowly lifting Covid-19 restrictions both domestically and regarding travel.”

The UK is yet to be added to a “white list” of non-EU countries from where the EU recommends that unvaccinated travellers may safely be permitted to enter the bloc for non-essential reasons. Despite the delay, countries including Portugal have opened their doors to British tourists.

Biden walks fine line with probe into coronavirus origins

 President Biden is turning to confront the mystery surrounding the origins of the COVID-19 pandemic, a move that provides political cover at home but could fuel greater tensions with China.

Biden is under pressure to reveal what the U.S. intelligence community knows about the possibility the coronavirus first leaked from the Wuhan Institute of Virology in China following reports that at least three scientists were hospitalized weeks before the first infections were reported to the international community.

Amid allegations that his administration shut down an investigation into the matter at the State Department begun by the former Trump administration, the president has given intelligence officials 90 days to declassify a report surrounding the lab theory, which contradicts the long-held zoonotic rationale for the coronavirus.

Former President Trump and some of his top administration officials repeatedly suggested last year that the virus could have come from a lab in Wuhan, though they could not provide evidence to support their claims. While the theory gained traction in conservative circles, it was dismissed among many public health experts, and Democrats brushed it off as an effort by Trump to deflect from his troubled pandemic response in an election year.

Biden’s move follows passage of legislation in the Senate on Wednesday night requiring the Office of Director of National Intelligence to release its report about the virus’s origins, spearheaded by GOP Sens. Josh Hawley (Mo.) and Mike Braun (Ind.).

Republicans have homed in on the unanswered questions as evidence Biden is failing to confront China with sufficient force, as the two countries are locked in a battle for global influence.

“The American people deserve to have all of the evidence,” Hawley said on the Senate floor Wednesday ahead of the bill's passage, “and deserve to have this government's full effort, and the effort of our allies and partners in holding accountable, China, for what it has done not just to this country but to the world, and to make sure that something like this never happens again.”

GOP Sens. Rick Scott (Fla.) and Ron Johnson (Wis.) are further pressing the administration to answer for its termination of the State Department probe into COVID-19’s origins.

Beijing rejects allegations that it is withholding information or obstructing efforts to determine the origins of the virus, which was first detected in the city of Wuhan in late December 2019 and has since killed more than 3.5 million people globally.

While the scientific community believes the virus likely originated in animals before being passed on to humans, public health experts say having clear information about the origins of the virus and the path of transmission to humans are essential to helping the world safeguard against the next pandemic.

“If it leaked out of a laboratory where a lab worker got infected and took that infection home and infected others, what safeguards can we put in these laboratories to make sure there’s a standard where this doesn’t happen?” asked Rep. Ami Bera (D-Calif.), a member of the House Foreign Relations Committee and a former practicing physician.

Ahead of a second phase of an World Health Organization-led study into the origins of the virus, the U.S. is pressing for the Chinese government to be more transparent following criticisms of the preliminary findings that were released in March.

“Phase 2 of the COVID origins study must be launched with terms of reference that are transparent, science-based, and give international experts the independence to fully assess the source of the virus and the early days of the outbreak,” Health and Human Services Secretary Xavier Becerra told the World Health Assembly on Tuesday.

Experts questioned the usefulness of an investigation led by the WHO given China had not cooperated with scientists trying to get on the ground and look into the virus when it was first spreading in late 2019. Without cooperation from Beijing, experts said, it may not be possible to determine with a degree of certainty the true origin of the virus.

The U.S. intelligence community said in a statement on Thursday that it has coalesced around two theories for the origin of the virus, that it emerged naturally from human contact with infected animals or was the result of a laboratory accident — but that there is not “sufficient information to assess one to be more likely than the other."

Biden’s directive for the intelligence community to spend another 90 days looking into the origins of the virus marked a subtle but notable shift from the White House’s stance earlier in the week, when press secretary Jen Psaki repeatedly indicated the administration would support an independent investigation, but not taking a leading role in conducting it.

The shift offers Biden a chance to appease both Democrats and Republicans who have urged him to get tough on China, but it risks further straining the relationship between the two nations.

“Given where U.S.-China relations are, it’s even less likely for [China] to be forthcoming,” said Scott Kennedy, an expert on China policy at the Center for Strategic and International Studies.

“There’s a genuine value to know the origins of the current pandemic to help prevent future pandemics,” Kennedy added. “But as a strategic move it also clearly puts China on the defensive. It highlights some of the weaknesses of their system, particularly with regard to transparency and the consequences that has for others.”

A foreign ministry spokesperson in Beijing responded to Biden’s order for a more intensive review by calling the investigation politically motivated and alluding to a baseless conspiracy theory that a U.S. military base may have ties to the origins of the virus.

Biden has attempted to strike something of a balance on policy toward China so far. He included Chinese President Xi Jinping in a climate summit with world leaders in April and has spoken about the need for global cooperation to combat problems including climate change and the pandemic.

But Biden has kept Trump-era tariffs on China in place, and he has frequently spoken about the need to pass policies that will allow the U.S. to compete with China economically for years to come. He has at times framed that competition in existential terms, cautioning in March that Xi “doesn’t have a democratic ... bone in his body” and “thinks that autocracy is the wave of the future.”

A summit between Secretary of State Antony Blinken, national security adviser Jake Sullivan and their Chinese counterparts in Alaska in March proved to be only the opening salvo of a more contentious relationship.

“In a way you could say it's going from bad to worse,” Daniel Markey, senior research professor in international relations with the Johns Hopkins University School of Advanced International Studies, said of the latest point of contention between Washington and Beijing.

He added that Biden has so far maintained a hawkish stance on China, blending his policy goals with fending off political attacks from Republicans.

“His interest and capacity for playing the foreign policy issues through the domestic political issues and vice versa, I don’t know if it's unmatched but it’s unusual,” Markey said.

The expected nomination of veteran senior State Department official, Biden campaign surrogate and Harvard professor Nicholas Burns as U.S. ambassador to China is viewed as a positive development in U.S. and China relations as they seek to navigate the increasingly fraught relationship.

“This is a super pick, somebody who’s served at some of the top levels within the State Department and also has the political connections,” Markey said.  

“I think China will see that as generally positive, even though the tenor of the relationship is clearly very bad, because that’s the kind of person that, when they choose to do business, he’s the kind of person that can actually get things done.”

Lack of trust in vaccine top reason among unvaccinated voters

 A plurality of voters who are not yet vaccinated said the reason they have yet to get their shots is they don't trust the vaccine, a new Hill-HarrisX poll finds.

Thirty-seven percent of registered voters who have not been vaccinated in the May 21-23 survey said the reason is because they do not trust the vaccine.

Thirty-five percent of respondents who are not vaccinated said they are waiting to see how others respond.

Nineteen percent said none of the above while 9 percent said they are healthy and do not feel it is necessary to take the vaccine. 

Fifty-two percent of all registered voters surveyed said they are fully vaccinated while 13 percent said they are partially vaccinated.

Thirty-five percent of respondents said they are not vaccinated.

Forty-one percent of independents, 35 percent of Republicans and 28 percent of Democrats have yet to be vaccinated, according to the poll.

Fifty-four percent of Republican voters who have yet to get their shot said the reason is due to a lack of trust in the vaccine.

A plurality of Democrats and independents who are not vaccinated yet said they are waiting to see how others react, at 41 percent and 44 percent, respectively.

"The final third of Americans that are yet to take the coronavirus shot will be the most difficult to vaccinate, the data suggests, complicating the path to herd immunity," Dritan Nesho, CEO and chief pollster at HarrisX, told Hill.TV.

"The unvaccinated largely fall into two groups:  a third are waiting to see how others respond to the vaccine and could be convinced to vaccinate with more information.  Their profile is younger, male, urban and higher income. Close to the remaining half – 46 percent -- say they either don’t trust the vaccine or do not believe it is necessary to be vaccinated. Resistance due to lack of trust is higher among unvaccinated white, female, elderly, lower income and lower educated voters who live in rural and suburban areas and over index on being Republican voters," Nesho added. 

The survey comes before Memorial Day weekend and a few weeks before the July 4th holiday, a goal post of the Biden administration to get 70 percent of the country vaccinated. 

The most recent Hill-HarrisX poll was conducted online among 1,899 registered voters. It has a margin of error of 2.25 percentage points.

Bond traders look to job figures for taper clues as cash glut grows

 THE glut of spare cash in US dollar funding markets is combining with inflation concerns to stoke debate among investors about just how soon the US Federal Reserve might have to take its foot off the accelerator.

Bond traders are keenly attuned to the buildup of US dollars in short-term interest-rate markets, an overabundance reflected in the amount of money sitting and earning absolutely nothing at the Fed's reverse repo facility.

For some, that is yet another sign that the so-called quantitative easing programme ought to be dialled back from its current pace of US$120 billion a month, although others say that the central bank facility is acting like it should, as a safety valve, and also point to the other factors fuelling the oversupply.

Either way, the cash pile - and whether the usage of the Fed's facility resumes its upward trajectory after slipping on Friday - is set to be a key focus for traders in the coming week along with crucial US jobs data, which may give clues about just how strong growth and inflation really are.

"Progress towards achieving the dual mandate should be the biggest factor" driving decisions about policy tightening, said Credit Suisse Group strategist Jonathan Cohn, referring to the Fed's twin goals on employment and consumer prices.

The drumbeat of policymakers making noises about when the Fed should debate tempering its asset purchases has been quickening, although officials have been careful to say that their views are premised on the economy continuing to power forward and the prospects for sustained inflation.

The strength of the upcoming labour market report is therefore set to be a major catalyst for bets about when both tapering and rate hikes might begin to take place, as will the evolution of funding markets.

The next central bank policy meeting will take place June 15-16, while there is talk of possible tapering signals coming out of the Kansas City Fed's annual gathering at Jackson Hole in August.

Money-market traders are currently pricing in about 18 basis points worth of Fed rate hikes by the end of next year - down around three basis points from levels late last month. That equates to around a 72 per cent chance of a standard 25 basis-point increase in 2022.

Before they even get to that point though, officials need to get through tapering, and most analysts expect there to be a lag before they embark on pushing interest rates higher

The yield on 10-year notes has drifted slightly lower over the past couple of weeks, although it received some support in recent days from reports about government budget proposals and at around 1.59 per cent is firmly entrenched in the range that it has been in for a few months.

Bond-market inflation expectations, as measured by so-called breakeven rates, have also eased back slightly, although they remain within sight of the decade highs they reached earlier in May.

Some traders are wary that the upcoming report on May job creation could reignite the move higher in long-term yields.

The median forecast of economists surveyed by Bloomberg is for an increase in payrolls of around 671,000 people and a figure of that magnitude or higher could make the prior month's unexpectedly weak reading seem like a one off.

There is also the prospect of a revision to figures for April, which came in at around 266,000 despite earlier predictions for a gain of 1,000,000.

"The risks in the market are asymmetric toward higher yields," said John Briggs, global head of desk strategy at Natwest Markets.

"After last month's payroll figure, economists are being conservative this time, so there's a chance the actual figure is above consensus."

Covid-19: Red list arrivals terminal opens at Heathrow Airport

 A dedicated terminal for passengers arriving in the UK from countries with a high risk of Covid is opening at Heathrow Airport later.

From 04:00 BST, travellers arriving on direct flights from red list nations will transit through Terminal Three.

Heathrow said its top priority was protecting the public and helping reduce the risk of new variants.

There are 43 countries on the red list but direct flights are permitted from only a few of them, including India.

Only British and Irish nationals or UK residents are allowed to travel from countries on the list.

But anyone who has been in a red list country in the previous 10 days, whether they took a direct flight or came via another country, is required to pay for quarantine in a hotel for 10 nights after their arrival.

However, there has been concern at reports that travellers from red list areas were mixing with other passengers in immigration halls, where they could be waiting for several hours on occasion.

It comes as a scientist advising the UK government warned of signs the country is in the early stages of a third wave of coronavirus infections.

A Heathrow Airport spokeswoman said: "Red list routes will likely be a feature of UK travel for the foreseeable future as countries vaccinate their populations at different rates.

"We're adapting Heathrow to this longer-term reality by initially opening a dedicated arrivals facility."

She added that while opening the facility would be "logistically very challenging", Heathrow hoped that doing so would enable Border Force to carry out its duties more efficiently, as passenger volumes increase in line with countries on the government's green list.

But for now, the current red list system would continue, including mandatory negative Covid tests for all international arrivals, mandatory use of face coverings, social distancing, segregation and enhanced cleaning regimes and ventilation in immigration halls.

Heathrow added that its dedicated arrivals site would switched to Terminal 4 "as soon as operationally possible".

A government spokeswoman emphasised the UK's top priority was protecting the health of the public, using an enhanced borders regime to reduce the risk of new variants being transmitted.

"As we reopen international travel safely, we will maintain 100% health checks at the border and the new dedicated terminal at Heathrow for arrivals from red list countries will enable passengers to be processed as safely and as efficiently as possible, before being transferred to a managed quarantine facility," she said.

"We continue to do all we can to smooth the process, including the roll-out of our e-gate upgrade programme during the summer and deploying additional Border Force officers."

It's been three and a half months since the government first introduced quarantine hotels.

But before red list passengers make their way to the hotels for their 10 days of isolation, they were waiting in the same arrivals hall as passengers from other lower risk countries, sometimes for hours at a time. While there were separate queues, some people felt unsafe.

Although the idea of a separate red list-only terminal has been floated before, the issue has always been about who would pay for it.

After over a year of incredibly low passenger numbers, opening an extra terminal was a big cost that Heathrow weren't eager to take on.

Some felt that as the red list is a government policy, it should be the government that foot the bill.

Although neither side has confirmed who is covering the cost, it's understood that the government is now picking up a substantial part of it.

International travel is likely to remain very different for a while, as Heathrow anticipates that a red list terminal will be needed for some time.

Minimising queuing times

The Home Office told the BBC that Border Force has mobilised additional staff to help minimise queuing times for passengers who are compliant with the UK's border health measures, and that it is making sure that it has the right level of resources to maintain border security as international travel begins to open.

However, the Public and Commercial Services Union (PCS) says that its Border Force members are "very concerned" about the health and safety issues arising from the decision to open up Terminal Three as a dedicated red list terminal.

A PCS spokesman said: "The decision was taken at extremely short notice meaning key social distancing procedures are not in place and operational work is likely to be undertaken without the necessary protection for border staff or passengers.

"This is another poorly planned initiative that will be understaffed and rely on volunteers to do overtime, to avoid mounting queues."

Dozens of countries are on the red list, including India, Pakistan, Turkey, Brazil and South Africa.

The Most Important Number In The Biden Budget

 While there was far more than met the eye in Biden's $6 trillion budget (released late on Friday ahead of the "long weekend" as if Joe desperately hoped nobody would read it as it pissed off both conservatives as well as socialists) as discussed last week his budget proposal to Congress did reveal what Goldman has called the "most important number" in the budget - it calls for an increase in the deficit of $800BN over 10 years (0.3% of GDP over that period) to accommodate his “American Jobs Plan” (AJP) and “American Families Plan”(AFP). While the amount is not surprising, according to Goldman this is the first time the White House has formally shown the net effect of their proposals over the ten-year period Congress will use when it considers them.

Why is this important?

As Goldman explains, this figure will be relevant to the congressional debate, as Democratic leaders will need to choose a dollar figure to include in a forthcoming budget resolution that directs the committees that will craft the fiscal package. Whatever figure they choose figure will set a limit on the reconciliation legislation that follows. In most recent budget resolutions, the directive has come in the form of a directive to increase the budget deficit by a certain amount. However, congressional leaders could also specify separate spending directives and tax directives. In either case, once the amount is set, the legislation that follows may not increase the deficit by more than directed.  While congressional Democrats are free to choose a different amount, the Biden budget is the first  formal indication from any of the key decisionmakers regarding how much they propose to increase the deficit to fund their proposals.

Besides the formalized deficit number, most of the details in the budget were already previewed in White House releases over the last several weeks. The White House already announced the two major proposals, the AJP and AFP (American Jobs and Families Plans), several weeks ago, and there were few other policy proposals in the budget outside of those plans. For the most part, the specific figures in the budget match fairly closely with what the White House had already laid out. These plans are summarized in the table below.

As for the "6 trillion proposal", Goldman expects Congress to scale back the proposal, "with a risk that it is scaled back more than we have been expecting." Goldman's forecast assumes that Congress enacts a package of slightly more than $3 trillion, with tax increases of around half this much. However, for the first time since the start of the pandemic, the risks to Goldman's fiscal assumptions appear skewed to the downside.

Why? Because if congressional leaders adopt the White House position that the total deficit impact of the forthcoming fiscal package should be kept to around $800bn over ten years (i.e., the "most important number"), this would mean that Congress would need to raise taxes much more than expected (which is unlikely as even centrist democrats have balked), or increase spending far less than expected.

And with regard to taxes, Goldman expects less than half of the Biden proposals to become law:

Specifically, we assume Congress will pass a 25% corporate rate, rather than the 28% the White House proposes, and that congress will substantially scale back the corporate tax increases on international income. We expect the top marginal individual rate to increase as proposed, but the capital gains rate is more likely to settle around 28% and that the increase is unlikely to take effect retroactively, as there appears to be tepid support for a capital gains rate increase among some centrist Democrats and making the tax hike retroactive could reduce support further.

Meanwhile, as noted above, the budget highlights the smaller scale of any additional fiscal boost. The budget proposes to increase the deficit by $118bn (0.5% of GDP) in FY2022, and $224bn (0.9%of GDP) in FY2023. Spending would increase by more than this—$265bn (1.1%) and$530bn (2.2%)—but around half of this would be offset with tax increases. These are big numbers in a normal policy and economic environment, but this amounts to only a fraction, on an annual basis, of the fiscal support Congress has provided over the last year. The chart below shows the Biden Administration’s estimate of the proposals effect on the budget deficit over the next ten years.

What happens next? We expect Congress to begin moving forward on these proposals next month.

Although bipartisan discussions on an infrastructure package are continuing, the already low odds of success appear to be dwindling further. With a nearly $1.5 trillion gap between the White House’s proposal and the Senate Republican offer, and even less overlap in how to finance the new spending, it is hard to see how a bipartisan agreement will come together. Instead, congressional Democrats are likely to move forward with one large reconciliation bill, requiring only 51 votes in the Senate, that encompasses both of President Biden’s major proposals (the AJP and AFP).

Here, Goldman assumes that the House and Senate Budget Committees will begin to move forward with the irrespective budget resolutions by mid-June, which will lay the procedural groundwork for the reconciliation bill and, as described above, set a limit on the deficit impact. It is possible that the House will begin to pass legislation in committee in June, but full House passage of the actual reconciliation bill will likely take until July.  The Senate could start on the bill in July, but passage in September or October looks more likely than July at this point.