Once Joe Biden is sworn in on 20th January, the Democratic Party will not only be in charge of the White House and the House of Representatives but also the Senate, following the surprise victories of the Rev. Raphael Warnock and Jon Ossoff in Georgia’s run-off election on 6th January. It will be the first time since the early Obama years that the Democratic party holds both houses of Congress.

For the Democrats, the ‘blue sweep’  has raised hopes that they can overcome the gridlock that has characterised policymaking for much of the past decade and more easily implement their legislative agenda. Having said that, the democratic control of the Senate is narrow and effectively relies on the tie-breaker vote of Vice President-elect Kamala Harris. Most legislation requires a majority of 60 to pass the Senate, meaning Democrats will need to rely on bipartisan support for their bills and make sure there are no defectors in their own ranks. An exception to this rule is the annual budget reconciliation process, which can pass with a simple majority, and can contain a host of different policies. Nevertheless, pushing through a major policy agenda will require Biden to perform a careful balancing act to garner support from moderate Democrats and Republicans while keeping the progressive wing of his party in line.

Based on Biden’s presidential campaign proposals we think the incoming administration will prioritise the following:

• Democrats across the country have campaigned heavily on a large fiscal stimulus programme to mitigate the economic effects of the recovery while investing in a number of priority fields such as health, education and infrastructure. On 14th January,  the President-elect unveiled a new $1.9 trillion plan to fight the pandemic, accelerate vaccine roll-out and help American households and businesses suffering from the economic downturn. The proposal sees the $600 stimulus checks, which were part of a $900 billion second stimulus package passed at the end of 2020, increase to $2,000 per person. Apart from checks and other income support schemes, the bill also takes aim at long-term Democratic policy aims such as a $15/h minimum wage and extended sick pay for workers.
   
• Beyond Covid-19, we can be quite certain that the new administration will look to focus the US on the fight against climate change and reverse some of the outgoing President’s decisions. Biden has announced the US would re-join the Paris agreement and commit to net-zero carbon emissions by 2050. On the campaign trail, he unveiled a $2 trillion climate action pledge including plans for a faster roll-out of renewable energy sources, carbon reduction initiatives and a green tax reform. How much of this package can be passed remains to be seen, but we’d expect the President-elect to invest significant political capital on the green transformation of the US as the programme is also supposed to deliver new jobs and transform the US industrial base.
   
• Tax raises for corporates and the wealthy were a further cornerstone of the Biden-Harris campaign. The prospects for these don’t look too good in the near term as the majorities in the Senate and House are both thin and the 2017 tax cuts were for many Republican senators and congressmen the main reason to support Trump in the first place. The timing for large tax increases currently doesn’t feel right as the US is still in the depths of the pandemic, making a moderate increase in corporation tax likely the maximum achievable for Biden in the near future. Moreover, as long as interest rates remain near zero, the fiscal expansion can be financed through additional borrowing without too much pain.

In summary, we expect a significant further loosening of US fiscal policy while monetary policy will likely remain accommodative as the economy continues to recover. Indeed, Fed Chair Jerome Powell just recently reiterated his pledge that the central bank would wait for inflation to ‘sustainably overshoot the 2% target’ before raising rates. This could lead to a further weakening of the US dollar after the currency lost around 6.5% of its value over the course of 2020. However, how successful Joe Biden will be in transforming the US into the healthier, less unequal and greener country that he envisioned in his campaign proposals will depend to no small degree on his negotiating skills as he tries to keep all factions of the Democratic Party united while wooing moderate Republicans.

For more information, please contact:Contact: Kay Daniel Neufeld kneufeld@cebr.com phone: 020 7324 2841