The special runoff elections to determine the Senate seats in Georgia have concluded with both Democratic candidates winning their races. As a result, the United States Senate will be split – 50 Republicans and 50 Democrats – with the tiebreaking vote going to the Vice President and giving the Democrats a slim majority. With Democrats now controlling the House of Representatives, Senate, and White House, it may change the ability for the Democratic agenda, led by President-elect Biden, to gain further traction.
In the coming months, President-elect Biden is expected to focus on:
- Further fiscal stimulus
- Budget reconciliation for tax changes
- Build Back Better plan
One of the first orders of business after the inauguration on January 20 is expected to be additional fiscal aid, which he will lay out in greater detail on January 14. The additional fiscal stimulus is expected to include direct payments to households, extension in unemployment benefits, and State and Local aid in the range of $750 – $900 billion1. The graph below shows how Goldman Sachs expects a $750 billion dollar plan to be distributed.
Additionally, the President-elect is expected to use the Budget Reconciliation process to push for new tax proposals including2:
- Raising taxes on individuals earning $400,000 a year
- Raising corporate taxes from 21% to 28%
- Raising long term capital gains rates on investors with over $1 million in annual income
Under normal circumstances, the Senate needs 60 votes to pass a typical bill, however, with the Budget Reconciliation process, the Senate only needs 51 votes. Budget Reconciliation can only be used once per year but it heightens the importance of a slim majority for the Democrats at this time.
Lastly, President-elect Biden is expected to propose initiatives on infrastructure through the “Build Back Better” plan. The details of the plan will focus on transportation, digital policy, water, and energy. Final details, however, are subject to change and will be highly debated in both the House and Senate.
In our opinion, fiscal stimulus and infrastructure measures could facilitate further growth while higher corporate tax reform could be a headwind to S&P 500 earnings. As all initiatives come into greater clarity, the investment team will examine for adjustments that benefit or detract from the fundamental performance of the markets and adjust portfolios accordingly. However, we maintain our stance that economic activity will be predominantly decided by the U.S. response to COVID-19 and our ability to begin the process of reversing the restrictions that will allow jobs to grow and consumers to accelerate their spending.