The new administration has announced several policy proposals, and more are expected. But that does not mean tax and spending plans will be easily passed into law. Given narrow Democratic control of the Senate — a 50-50 split with the vice president in position to cast tie-breaking votes — moderate members of the president’s own party must be on board. As a result, investors can anticipate that compromise and moderate changes are likely.
Control of the Senate has implications in several areas:
- The President’s cabinet nominees, which require a simple majority vote, are more likely to be confirmed.
- Democrats will control a majority of the various committees and resources and also the Senate agenda — including which bills are considered or blocked.
- Some budgetary matters can be passed with a process known as reconciliation.
- However, most remaining categories of legislation require 60 votes to pass. For that reason, many issues will require compromise.
President Biden’s top priority is to accelerate distribution of the coronavirus vaccine to 100 million Americans in 100 days. That effort requires additional pandemic relief with a price tag of $1.9 trillion, according to the White House proposal. It would include money for state and local governments, benefits for displaced workers and $1,400 direct payments to individuals. The amount of a passable relief package is open to debate, as many Republicans and some moderate Democrats have expressed reservations about the provisions and the overall size of the package.
There are other initiatives the president can enact quickly on his own. For example, he signed executive orders to rejoin the Paris Climate Accord and the World Health Organization.
Regarding taxes, the president campaigned on the idea of raising the statutory corporate tax rate to 28% from 21%. He also has proposed reinstating the top 39.6% individual tax bracket for certain wage earners, as well as taxing dividends and capital gains as ordinary income for those earning above $1 million.
President Biden has also made several additional proposals with potential implications for capital markets and business activity:
- Aggressive infrastructure spending, with much of it directed toward climate sustainability and the promotion of alternative energy
- Enhancement of the Affordable Care Act and creation of a public insurance option
- A higher federal minimum wage of $15 an hour
- Employee protections, union organizing and collective bargaining
The appointment of former Federal Reserve Chair Janet Yellen as Treasury Secretary should assure the Fed is able to function independently, without political interference. But banking regulation is likely to remain strict.
How the president approaches trade policy remains to be seen. The previous administration preferred bilateral trade deals and tariffs. President Biden has expressed a desire to engage with U.S. allies in developing a more coordinated China policy.
The President is right in making the fight against the coronavirus his top priority. There is little disagreement, and any return to normal depends on it. Other policy proposals may be met with more opposition. Compromise will no doubt be necessary to get anything done.