washington <u+2014> stock traders celebrating donald j. trump <u+2019>s election have been bidding up equity prices on a risky bet: that the new president will steer congressional republicans in a u-turn away from their tightfisted fiscal policies <u+2014> and bring democrats along for the ride. the hope, reflected in financial firms<u+2019> postelection tip sheets for investors, is for a robust program of tax cuts and new spending, especially for infrastructure projects. but republican leaders in congress <u+2014> who in 2009 opposed president obama<u+2019>s stimulus program amid the worst recession since the great depression , and have blocked his proposed infrastructure investments ever since <u+2014> are not rushing to embrace stimulus spending now. and democrats, who had quickly offered to support mr. trump<u+2019>s bid for more than $100 billion a year in additional public works spending, have turned hostile since his team began emphasizing tax breaks for private developers instead of direct government spending. that combination could bring soaring stock prices back down to earth. <u+201c>market expectations of quick fiscal expansion may be running ahead of political and legislative realities,<u+201d> alec phillips, a goldman sachs economist, recently cautioned clients in an analysis, a point he reiterated in an interview. mr. phillips suggested to clients that <u+201c>a modest infrastructure package<u+201d> is more likely. but even that probably would not come as soon in 2017 as markets seem to anticipate, given the political and budgetary hurdles ahead. mr. trump is unleashing a debate within the republican party that will challenge its fiscal orthodoxy against spending and deficits <u+2014> and test how fully he has commandeered the party. conservative hostility to stimulus spending, proposed by both president george w. bush and mr. obama, helped spawn what became the tea party movement . for evidence of just how significant the fiscal policy shift could be for republicans, consider the difference between the bottom lines of mr. trump<u+2019>s campaign platform and the most recent house-passed budget outline. his tax cuts and spending policies would add $5.3 trillion to federal deficits projected over 10 years, according to the nonpartisan center for a responsible federal budget. the house budget would reduce deficits $7 trillion, mainly through deep reductions in projected spending for entitlement programs like medicare, which mr. trump has been reluctant to embrace . that is a difference of more than $12 trillion. republicans<u+2019> anti-spending bent was evident within days of the election, when the lame-duck congress convened to finish the annual government-funding bill. hard-line conservatives in the house publicly warned that speaker paul d. ryan<u+2019>s job would be in danger if he compromised with mr. obama on additional spending. as for infrastructure, such an initiative is not even on mr. ryan<u+2019>s agenda, as he pointed out at a september forum in washington after laughing at the suggestion that he might help mr. trump pass a $550 billion, five-year spending plan. he has countered that congress last year passed, and mr. obama signed, the largest highway bill since the 1990s. but the roughly $60 billion a year the law provides over five years for roads and mass transit is far less than mr. obama wanted <u+2014> or mr. trump has proposed <u+2014> and would not cover public works unrelated to transportation, like water systems, levees and schools. yet with mr. trump<u+2019>s election, just the prospect of the federal government<u+2019>s belt-loosening has cheered not just markets, but also economists who otherwise worry that the president-elect<u+2019>s trade and immigration proposals, if realized, could hurt the economy. through the years of slow growth, many economists have complained that congress<u+2019>s insistence on austerity, with mr. obama<u+2019>s acquiescence, has been a drag on growth, compelling the federal reserve to prolong its expansionary monetary policy to compensate . lately those complaints have mounted, spurred by a new economic development: the prospect, forecast by the fed, of lower-than-expected interest rates for perhaps years. lower borrowing costs for public investments could put people to work now and provide long-run returns for the economy and society, a range of proponents say. so congress and the white house should invest more for now, they say, and worry less about deficits. the interest rate outlook is <u+201c>a sea change in the economic backdrop for fiscal policy,<u+201d> douglas w. elmendorf, who directed the nonpartisan congressional budget office for six years, wrote last month . <u+201c>borrowing, especially for investment, passes a cost-benefit test,<u+201d> he added. in an interview, mr. elmendorf, now dean of harvard<u+2019>s kennedy school of government, said the <u+201c>overwhelming<u+201d> consensus of economists was that mr. obama<u+2019>s 2009 american recovery and reinvestment act had bolstered economic output and employment. <u+201c>too many political leaders don<u+2019>t understand the importance of fiscal policy in fighting recessions and making crucial public investments,<u+201d> he said. douglas holtz-eakin, another former director of the congressional budget office, who often advises republicans as the president of the american action forum , is skeptical about infrastructure spending. what congress should do, he said, is lift the budget caps that it first imposed in 2011 on so-called discretionary spending , which covers all federal programs other than fast-growing entitlement benefits. <u+201c>that<u+2019>s the place where the federal government does any genuine investment to improve the economy in the future,<u+201d> mr. holtz-eakin said. <u+201c>and the caps really just codified what was going on anyway, which is that the large amount of entitlement growth is just pushing all of the sort of basic infrastructure, research, education, national security out of the budget.<u+201d> it is unclear how mr. trump will proceed <u+2014> whether he will seek new spending, as he initially proposed, or a generous tax credit for businesses to pursue infrastructure projects, as advisers outlined just before the election, or both. in his triumphal remarks after the election, mr. trump emphasized an infrastructure initiative above any other policy, vowing to <u+201c>rebuild our highways, bridges, tunnels, airports, schools, hospitals,<u+201d> making them <u+201c>second to none.<u+201d> yet the sort of projects he named suggest a need for direct government spending. dangling tax credits to private investors is not likely to spur them to undertake public works that do not readily offer a profit stream, critics say; instead, tax breaks of as much as $1 trillion over 10 years could reward investors for endeavors like energy pipelines that would have been built anyway. senator bernie sanders of vermont, who has strongly favored increased infrastructure spending, took to the self-publishing website medium last week to denounce the trump plan as <u+201c>a scam that gives massive tax breaks to large companies and billionaires on wall street.<u+201d> congressional republicans are more likely to favor tax credits over spending. but mr. trump<u+2019>s trillion-dollar tax credit proposal has its conservative critics. mr. holtz-eakin said he was <u+201c>enraged<u+201d> by it, given its cost and the claim that it would pay for itself through growth. democrats prominent in the debate, such as representative john delaney of maryland, say they will oppose a tax credit without new funding for public works, and perhaps a long-discussed infrastructure bank to leverage public and private investment. steven mnuchin, a senior member of mr. trump<u+2019>s transition team and a possible nominee for treasury secretary, told reporters that the president-elect was <u+201c>looking at the creation of an infrastructure bank to fund infrastructure investments.<u+201d> in the past, mr. ryan had negotiated with senator chuck schumer of new york, who will be the senate democratic leader, on a deal to increase infrastructure spending if democrats supported reducing the tax on multinational corporations<u+2019> foreign profits so they would bring the money to the united states to invest. but they could not reach agreement, and now the infrastructure-tax trade-off could be moot. some republicans say that, with mr. trump<u+2019>s election, they would rather use tax revenues from corporations<u+2019> repatriated profits to offset the cost of reducing corporations<u+2019> overall tax rates. a version of this article appears in print on november 30, 2016, on page a15 of the new york edition with the headline: stock traders are betting on big stimulus spending. congress may not go along. order reprints | today's paper | subscribe
traders bet on big stimulus spending. congress may not go along.
jackie calmes