The 2020 election polls illustrated that predicting what will happen in American politics with any confidence is becoming ever more difficult. Though the general prediction of a presidential victory for Joe Biden was correct, polling at a more granular measurement level seems accurate only in as much as the pollsters sampled the intent of those voters who were willing to answer polls; as the old saw goes, the election itself is the only poll that matters. So, it seems to be a fraught exercise to speculate on what a Biden administration will be able to accomplish—especially as two Senate races in Georgia will not be decided until January 2021.
That said, we do have some “known knowns,” as the former Defense Secretary Donald Rumsfeld termed events that are more likely to occur.
What happened and what will happen
We do know that December 8 is the deadline for states to resolve any disputes over the selection of their electors of the electoral college. On December 14, those electors will meet in their respective state capitals to formally vote for the president and vice president. The U.S. Senate will count those votes on January 6, and then the inauguration will take place on January 20 and the Biden administration will begin. (Despite recounts and legal challenges to the outcome, none appear to have much chance of overturning the result.)
Though Democrats won back the White House, the 2020 election was otherwise largely a disappointment for them, given the expectations of a “blue wave.” Democrats unexpectedly lost seats in the House of Representatives and, depending on the outcome of runoff races in Georgia, it appears they have failed to take control of the Senate.
On the state level, Democrats had hoped to pick up six chambers, but it was the Republicans who made gains, taking control of the legislatures in New Hampshire and Montana while maintaining the governorships in those states. Democrats picked up the Arizona legislature and Pennsylvania house, but those gains fell below their expectations. One major effect of this failure is that the GOP will be in the driver’s seat when state politicians redraw congressional maps in 2021, creating lines that will last for the next decade and help determine which party controls Congress.
In the U.S. Senate, the Democrats knew before the election that they needed to pick up four seats to make New York’s Chuck Schumer the majority leader, given that incumbent Doug Jones was likely to lose to Republican challenger and former Auburn football coach Tommy Tuberville (as, in fact, happened). Former astronaut Mark Kelly did defeat incumbent Martha McSally in Arizona, while former governor John Hickenlooper beat incumbent Cory Gardner in Colorado; however, expected pickups in Maine and North Carolina did not happen as Republicans Susan Collins and Thom Tillis, respectively, retained their seats. That leaves the numbers balanced at 48-48.
The battle for control of the Senate next moves to Georgia, where Republican incumbents Kelly Loeffler and David Perdue will face Democratic challengers Raphael Warnock and Jon Ossoff, respectively, in a runoff election on January 5, 2021. Should the Democrats win those races, they will take the majority in the Senate, with Vice President Kamala Harris as the tiebreaker in a 50-50 split.
As Democratic political operative David Axelrod noted in a conference call before the election, even if Biden’s party is able to take control of the Senate and ends up with Schumer rather than Mitch McConnell (R. Ky.) as majority leader, the body will likely be more moderate than the progressive wing of the party would prefer. Senators such as Kelly and (if they prevail) Warnock and Ossoff would likely be more in the mold of Jones and Joe Manchin of West Virginia, tacking right with an eye on future elections in still conservative-leaning states.
Significant benefits of two Democratic wins in Georgia would be gaining control of Senate committee chairmanships and a cooperative Schumer being able to bring legislation favored by the Biden administration to the floor.
If McConnell keeps his position, it is unlikely that President Biden will be able to push through much, if any, of what he proposed during the campaign. Indeed, McConnell may have a greater say in who is in a Biden cabinet than any Democratic Party leader, since the majority leader has shown a willingness to flout congressional norms (as seen, for example, with Supreme Court nominations) when he sees a political advantage. With House Speaker Nancy Pelosi (D., Calif.) in a weakened position in the lower chamber, but Democrats still retaining control, we are likely facing two years of gridlock until the 2022 midterms, with very little legislative action should the Republicans keep the Senate.
While Pelosi may face a challenger for the speakership, it is likely to be more symbolic than serious, in that such a challenge will highlight the split between the moderate and progressive wings of the Democratic Party that was on display during an intra-party conference call on the Thursday after Election Day. While the moderates reportedly decried the progressives’ positions on policing and environmental issues, the progressives (and Pelosi) noted that the Democrats would not have won the House without the votes from the left.
Republicans will face their own tightrope to cross: While Trump lost the presidency, the result was not the thorough national repudiation of his policies and performance that Democrats had hoped for. While Biden may have won the most votes for any presidential candidate in American history, Trump won the second-most. Trump will maintain a devoted following in the GOP. Any Republican who is publicly or privately at odds with the Trump forces in the party will have to tread lightly. But though it is likely to be muted, there will be some conflict between the Trump wing and more establishment Republicans, offering an opening to the Biden administration for some bipartisan action.
What might happen
Despite the prospect of gridlock, President-elect Biden is a veteran legislator, having been first elected to the Senate at the age of 29 in the early 1970s. Biden and McConnell have a long relationship (and an apparent friendship). Biden was the point man in negotiations with the majority leader for the Obama administration. He may be able to find common ground with McConnell. Failing that, Biden may call on his experience as a senator to possibly forge a unity coalition with more conservative Democratic senators and more moderate Republicans to form a voting bloc outside of McConnell’s control. Biden might tap some Republicans for cabinet positions (even some who were more aligned with President Trump). One work-around may be to use the Trump tactic of appointing Cabinet members in an acting capacity to avoid confirmation battles.
Both Biden and Pelosi will certainly face challenges from the left within their party as they take a more centrist posture; we will likely see a split among the Democrats along the lines of the late 1980s “third way” movement that led to the rise of the centrist Democratic Leadership Council. Some version of the DLC, which folded in 2011, may be revived; the DLC, after all, was credited with putting Bill Clinton in the White House. Alternatively, we could see a progressive version of the DLC formed, centered around Sen. Elizabeth Warren of Massachusetts, Sen. Bernie Sanders of Vermont, and Rep. Alexandria Ocasio-Cortez of New York. Whether this would have much influence over the next two years is questionable; but as with the DLC efforts that resulted in Clinton taking the White House (not to mention the conservative push following Barry Goldwater’s 1964 defeat that eventually resulted in President Reagan), the aim may be more long-term.
On the Republican side, while Donald Trump may no longer be in the White House, he will remain a strong influence on the GOP. Trump will almost certainly run again in 2024 or back a preferred candidate, and any Republican candidate in the 2022 midterms will need and want his support. How this may conflict or coincide with McConnell’s efforts will be telling.
As it is, Trump will be president until January 20, 2021, while the current 116th Congress will be in office until January 3, 2021. McConnell said that he plans to pass a COVID-19 stimulus relief bill by the end of the year, which will likely be smaller than the $2.2 trillion package offered by Pelosi before the election or the $1.8 trillion White House proposal that Pelosi and Treasury Secretary Steve Mnuchin were working toward. McConnell had introduced a $500 billion targeted relief bill, which was blocked by Democratic senators, before the election which included liability protection, a continuation of some federal unemployment benefits, additional small business funding through the Paycheck Protection Program, assistance to the postal service, and educational and child care support. The sticking point was state and local aid and how to pay for it; there may yet be some compromise on that, McConnell indicated. An omnibus spending bill will need to be passed by December 11 to avoid a shutdown. This bill could provide a spur to come to agreement on a stimulus. But the likelihood is that any stimulus, whether passed this year or in early 2021, will be smaller than what has been proposed, which portends slow growth.
What will Biden be able to do?
The most likely outcome in Georgia is for the Republicans to prevail. Even with the national focus on their importance, the races are now essentially off-year elections, which traditionally have lower turnout. Voters in Georgia have just gone through a cycle of campaigning and are probably sick of campaign ads and more inclined to focus on the holidays. And, though Biden flipped Georgia, his victory was by a thin margin, and Georgia is still a red state. So, the following assumes a Republican-controlled Senate (and, as noted above, even a Schumer-led body is likely to be moderate).
The election result means no change is imminent in the tax rates. The Biden administration does not have the votes to get a tax increase through, and McConnell has no incentive to raise taxes. There will be efforts to roll back parts of the Tax Cuts and Jobs Act, such as its lower rates on the wealthy and corporations. Democrats face an intra-party squabble over repealing the law’s $10,000 cap on state and local tax deductions, however.
The filibuster will remain in place, and McConnell’s focus on confirming judges will continue, though he will shift to keeping positions unfilled (as he did during the Obama administration). The Supreme Court will remain at nine justices; any talk of “packing the court” will be confined to the history books and Franklin D. Roosevelt’s failed attempt in the 1930s.
Federal involvement in actions on COVID-19 will ramp up; Biden announced a new task force on the Monday after the election. The task force will be co-chaired by former surgeon general Dr. Vivek H. Murthy and former Food and Drug Administration commissioner Dr. David Kessler, and Yale School of Medicine professor Dr. Marcella Nunez-Smith.
There will be more talk about infrastructure, even if the likelihood is that no action will be taken as the Republicans rediscover their repugnance for deficit spending.
The scrutiny of Big Tech will continue, but it is unlikely to result in any legislative action. The two parties are seeking different ends, with Democrats looking to break up Google, Facebook, and Twitter, while Republicans are more concerned with the sites’ moderation of content. (As an aside, increased moderation is a function of social media moving into the news business as traditional sources such as newspapers fade away and Big Tech suddenly finds itself needing to adopt more traditional journalistic standards.)
Biden is certain to issue executive orders rejoining the Paris climate accords and the World Health Organization. He will also reorient various federal agencies and regulations. Biden has said that he plans to immediately reverse the Trump administration’s rollback of 100 public health and environmental rules that the Obama administration had in place. Biden will also seek to lift the Pentagon’s transgender military ban and reverse rules that stripped federal funding from Planned Parenthood. But such actions could face a roadblock of conservative judges confirmed in the last four years.
Any border wall construction will stop, along with the siphoning of funds from military construction projects and other programs used to pay for it. The Biden administration will push a comprehensive immigration overhaul with a path to citizenship for undocumented immigrants.
On health care, the Biden administration will lower Medicare’s eligibility age and advance a robust public option to compete with private health insurance, while recognizing that “Medicare For All” is unlikely.
On trade, Biden will roll back the Trump tariffs, but any easing of the trade war is likely to take a back seat to domestic issues. In addition, Biden has indicated that he is not ruling out any new tariffs.
From a market point of view, we have already seen the clearing up of uncertainty over the election results lead to a robust burst of optimism. The market does not like uncertainty, and even if the path of politics is leading to gridlock, legislative inaction is a clear result that investors can live with.
We are anticipating slow growth continuing with a market focus on the containment of COVID-19. Though it is possible to forecast the political landscape, the coronavirus goes at its own pace and is the single largest issue for the economy and, in turn, the markets to overcome. Even if we get a safe vaccine, it will still take at least 6 months for the vaccine to be distributed to the approximately 60% of the population for efficacy and more importantly whether 60% of the population would even get the vaccine. This is a public health crisis that will be driven by a leadership solution. We believe we will see an overall gradual improvement to the markets with occasional potholes as we work our way to an eventually science-driven vaccine solution.
As always, if you have any questions about this report or any other questions, please reach out to Bowen Asset at info@bowenasset.com or (610) 793-1001.
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