A clean sweep for democrats is possible
It’s not just the US presidency that is up for grabs this November, but Congress as well, with all 435 seats in the House and 35 Senate seats in play. If the latest polls are to be believed, the potential for a clean sweep by the Democrats, where they control the White House and both arms of Congress, is considerable.
This is according to Lawrence Hatheway, the ex-GAM chief economist who founded Harbor Advisers and co-founded Jackson Hole Economics. He was in conversation with Adriaan Pask, Chief Investment Officer of PSG Wealth, in the first of the new series of PSG Think Big webinars.
Of course, much depends on voter turnout, whether in person or by mail. Traditionally Democrats are more likely to vote by mail than Republicans, who have a greater preference to physically go to the polls. However, with the stakes so high, and without concrete evidence, the Republican campaign is sowing doubt about mail-in voting, saying it is vulnerable to fraud. If this message sinks in sufficiently it could prevent voters from participating by mail. At the same time, a fear of contracting Covid-19 by voting in person could lower physical turnout at the polls.
Such issues aside, Pask asked Hatheway to outline the differences between a Trump win and a new Biden administration taking over the White House come January next year.
“Much will depend on whether we continue to have a divided government, with the party controlling the White House also controlling either the Senate or the House, or whether there is a clean sweep with one party controlling the presidency and both houses of Congress,” Hatheway said.
“As we’ve seen during Trump’s first term, a divided Congress can make it difficult for either party’s agendas to proceed through Congress smoothly and come to fruition.”
Looking at the potential impact of a Democrat or Republican win on various areas of policy Hatheway said that a Biden win would see a second round of fiscal stimulus being passed quite quickly, maybe even in the fourth quarter of this year. And with the Covid-19 virus set to rebound strongly during the northern hemisphere winter, more economic support will be needed by individuals and businesses. Of course, if the government remains divided, there could be roadblocks.
In addition, a Biden administration will likely raise corporate taxes. Not back to where they were before Trump became president, but certainly not as low as their current level of 21%. “I think an increase to 28% is on the cards in this scenario.”
Regulatory policy will be a key area of difference between a Trump and a Biden White House. “The Trump Administration, often by executive order, has rolled back a number of regulations, for example in the energy and environment sectors. These could be reversed by a Biden administration, and the US would almost certainly rejoin the Paris Climate Agreement.
“We could also see a changed perception of the entire healthcare industry,” Hatheway said. “While Biden believes in private insurance, he says it should be supplemented by the ‘public’ option of Medicare, giving people the right to sign up for it and creating a long term shift towards the provision of public healthcare for more and more Americans.”
Pask asked if the Democratic position on corporate taxes could deter voters from voting Democrat as higher company taxes could result in lower wages.
“Traditionally Democrats have been labeled as the ‘tax and spend’ party, and with some justification, looking to tax both individuals and companies so they can spend on various social programmes. However, in the current environment, this label will be far less effective because of the wide disparity in income that voters see.
“Trump has clearly signaled his support for Wall Street and he views the performance of the stock market as a measure of his economic performance. However about 90% of all investable assets in the US are held by only about 10% of Americans.
“So, for the sake of greater equality, more Americans are seeing the need to tax companies at higher rates to help ordinary Americans enjoy government benefits such as unemployment, particularly in the current recession, and other benefits like social security and healthcare.”