Ted & Claire L. from Key Largo, FL ask: Greetings from Florida, Mitch. Claire and I were wondering what you think is going to be possible policy-wise under a Biden administration. Any big changes that could shape the economy and stock market in the coming years?
Mitch’s Response:
Thanks for writing, Ted and Claire. The extent of policy changes and new laws really depends on the outcome of the January 5 Georgia Senate races. Should Democrats prevail in both races, it would result in a 50-50 Senate with the vice president casting the tie-breaking vote. This outcome is largely seen as a long-shot, though anything is possible.
Even with slight control of the Senate, the Biden administration would have to work with moderate Senators to pass legislation. Rewriting labor laws, for instance, would probably have very little chance of passing even with a 50-50 Senate.
Here’s a breakdown of other policy measures I see as possible no matter what the outcome, with some thoughts on economic and/or market impact:
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On Stimulus
I think both parties understand the need for more fiscal stimulus, but the breakdown of power in the Senate will likely result in a much smaller package than Democrats want, in my view. Hopeful news concerning Pfizer and now Moderna’s vaccine will likely ease pressure to put forward a sweeping, high-price-tag deal. Even still, I think we will see another round of fiscal stimulus soon, as states across the entire union are bearing the brunt of the ongoing pandemic.
On Health Care & Energy
We do not expect major changes on the health care and energy front, as a divided government will restrict any major policy changes on both fronts. For health care, a divided government may prove the best-case scenario, as we are not likely to see sweeping policies on drug pricing or expansion of Medicare. For energy, sweeping climate policy is off the table, though the Biden administration is expected to rejoin the Paris Agreement. Corporations have long signaled their support for the agreement.
On Taxes
We do not expect that the Biden administration will have the ability to raise taxes. However, many of the individual portions of the 2017 Tax Cut and Jobs Act will expire eventually, which gives way for a possible agreement to extend tax cuts that benefit middle-class families. Time will tell.
On Tariffs
On the tariff front, we expect more multilateral engagement against China, but the hard line established by the Trump administration is likely to persist.
Overall, I do not expect any sweeping regulatory or legislative changes in the coming two years (until midterms), just tweaks at the margin that should not run too much interference on the economic cycle.
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Disclosure