Welcome to Thoughts on the Market.

I'm Michael Zezis, Head of Public Policy Research and Municipal Strategy for Morgan Stanley.

Along with my colleagues bringing you a variety of perspectives, I'll be talking about

the intersection between U.S. Public Policy and Financial Markets.

It's Wednesday, March 31st at 10.30 a.m. in New York.

As President Biden unveils his Build Back Better Plan, a spending proposal covering a wide

variety of infrastructure issues, investors continue to ask, how will it be paid for?

It's an important question to ask since the answer has ramifications for the economy and markets.

Higher taxes are likely to be a part of the equation, but in our view, enacted tax hikes

will end up meaningfully smaller than those initially proposed by the Biden administration.

Leading up to the presidential election, Biden's campaign stated support for a variety of tax hikes

whose totals match the reportedly $4 trillion spent over 10 years for the Build Back Better Plan.

But we think the total tax hikes get filtered down substantially.

Why? Because the Democrats' slim majority in Congress means tax hikes likely cannot exceed

levels supported by its most electorally vulnerable members.

This includes moderates, who, as reports suggest, want to see a lighter touch on taxes.

It also includes other members who publicly stated that the return of the state and local tax

deduction is a condition of their support for any changes to the personal tax code.

This is a key point for investors because it likely means that the plan's spending will

outstrip its tax increases, creating a net benefit to US GDP.

But if taxes won't be raised to offset spending, then that means deficits are going higher to help

pay for Build Back Better. That may not be the first position the administration takes,

...