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Biden’s $6T budget would make ‘the Fed’s job much harder’: Strategist

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Chris Campbell, Kroll Chief Strategist, joins Yahoo Finance Live to discuss Biden’s budget proposal that would raise federal spending to $6 trillion.

Video Transcript

KRISTIN MYERS: We're joined now by Chris Campbell, Chief Strategist at Kroll. So Chris, the figure that we have here with this budget is huge, $6 trillion. And I'm seeing that the total of the debt would rise to 117% of the size of the economy just within the next decade. As you are reading about this budget, you're seeing this headline figure, does this come off as a fiscally responsible budget to you?

CHRIS CAMPBELL: Look, I think personally, no. I think it's obviously we're looking at record spending at a time we're actually seeing some inflationary pressure as well in the economy, which is going to put a real strain on what the Fed can do to put-- to keep that under control.

And so the-- one of the realities economically is that if the Fed raises interest rates, it not only puts a strain on the private sector, but also on the public sector debt as well, and which is, you know, I could just-- I think it makes the Fed's job much harder. And we're-- and again, we're-- we're seeing an inflationary pressure now. And certainly if there's a nearly $2 trillion tax increase at the end of the year, corporations are going to pass on that tax increase to-- to consumers, which is going to add more inflationary pressure.

ALEXIS CHRISTOFOROUS: You know, Chris, this can get confusing for folks who see all these big numbers fly by. How is what's going to be unveiled tomorrow different from that skinny budget we saw Biden talking about just a few months ago?

CHRIS CAMPBELL: Yeah, look, I think that, you know, the president has-- he has an obligation to report a budget to Congress every single year. There is a skinny budget that comes out. There's a-- and there's a kind of more robust budget. This more robust budget will encompasses the entirety of what the president laid out in his joint address to Congress in this kind of an aspirational set of policies.

So this is the one you should take more-- at pay and better attention to. Now again, in reality, the president's budget's largely a roadmap. Congress sets its own priorities and spending. And Congress, of course, has the power of the purse strings.

And so, you know, but again, the Congress being controlled by Democrats and the president being a Democrat, this is roadmaps-- you know, are things that we should be seriously, as Americans, being taken very seriously, because the congressional Democrats are going to largely look at this as a-- as a path forward and will govern, I think, of what we see happening over the next several weeks on the infrastructure package that you mentioned on the lead-in.

KRISTIN MYERS: Now Chris, as you're discussing here, this budget is really a sketch of the priorities that the president has, of course, as you're-- again, you're highlighting it's Congress who's going to determine really how much is going to be spend and how those funds are going to be allocated. However, I'm curious to know, just based on some of the details that we have right now about what is in this budget, if you think that perhaps Biden's vision can be enacted just in perhaps a far more scaled back way?

CHRIS CAMPBELL: Yeah, look, I mean, if-- there's obviously bipartisan talk going on right now. It's a-- there is a big difference. Look, I applaud the bipartisan effort. I really hope it's very successful. But if you peel back the curtains-- if you-- sorry-- if you pull back the curtains, you'll-- you'll notice the Republicans really are looking for a traditional infrastructure.

Democrats are looking for more kind of socialist-- social issues. And the really big cap is going to be on how this is paid for, on either taxing or repurposing spending. And so-- but if that and when, I believe, that bipartisan conversation fails, then we're going to move to a more partisan package where the Democrats will go it alone. When that happens, yes, you're-- what you suggest is right. So the Democrats can, in great measure, put together a bill that would ultimately become law that will have a lot of the priorities that the president has laid out and congressional Democrats agree on.

ALEXIS CHRISTOFOROUS: Want to get your opinion on the tax proposals within this budget. We know that President Biden would raise the top tax rate on capital gains to 43.4% from just under 24% right now for households that make, I think it's $1 million or more.

CHRIS CAMPBELL: That's right.

ALEXIS CHRISTOFOROUS: It would also include a child tax credit. Which among those things do you think are actually going to pass muster with Congress?

CHRIS CAMPBELL: Look, I think that-- I expect to see, if Democrats go this alone, and-- and I believe this probably ultimately will hap-- end up happening, you will see a cap gains increase. I don't know if it'll be at the top tier the president suggested. There is some-- there has been some pushback from moderate Democrats suggesting that that rate is just too high, and it will be detrimental to the capital markets, as I believe as will-- would as well.

But I-- so you've outlined some of the domestic issues. There's also an enormous amount of changes that would happen on the international tax regime, which would really-- could really be very detrimental to American businesses that have do-- that do business overseas. As you know, we source a lot of our products from overseas. And while the administration is proposing a 10% manufacturing tax credit for domestic manufacturing, re-domesticating or creating new manufacturing, that-- that may-- that 10% may or may not be enough to offset the challenges that international corporations may face with increased taxes if the president's ambition on tax reform is enacted.

KRISTIN MYERS: So I want to ask you just to pull out your crystal ball just for a moment. As we're highlighting some of these issues here on the Biden administration wanting to raise taxes, obviously markets would not respond to kindly, neither would Republicans, to a move like that. However, of course, with a budget as large as $6 trillion not going to be possible to do that without raising taxes.

So where do you think we are actually going to land once some of those bipartisan talks get through? Where do you think pragmatically they might be able to find some common ground? And what do you think will be the biggest sticking points?

CHRIS CAMPBELL: So I'm looking for Democrats to come together and put together a bill that will require 51 votes, 50 senators in the Senate and the vice president breaking the tie, like they did last-- earlier this year on the COVID package. I think it's going to be roughly $2 trillion in spending, a lot of it on green infrastructure, green energy tax incentives. And that will be largely-- and obviously infrastructure, as well, because this is new-- new spending that the Democrats have wanted to do for quite some time, ever since President Obama was president.

And I think the bill will likely have to largely be offset by half, so half of it paid for effectively. And that'll be largely due, in part, because of tax increases. And most of those will be on the ultra high-net-worth, or people making $1 million or above, and on corporations, specifically and especially on corporations that do business overseas.

KRISTIN MYERS: All right, Kroll Chief Strategist Chris Campbell. Thanks so much for joining us today.