ECONOMIC COMMENTARY

Election Outlook: An early look into 2021

The political and policy differences could not be starker

A part of the Washington Policy series

"Things move slowly in Washington until they don’t."

As a young Senate staffer I heard these words years ago from a powerful political leader and they ring true now more than ever. We have seen this firsthand with the divided Congress moving slowly and with great distrust for one another. Then COVID-19 hit the United States. Congress responded passing four bills in two months in response. While the past few months have been rampant with uncertainty with a critical election on the horizon our goal is to keep you informed as the leadership define their intentions regarding social, tax, healthcare, labor, spending and entitlement policy.

A political season of change

With a little more than four months until the general election, the politics and policy choices we face in November could not be starker. It makes our choices easier when we have Presidential candidates with such different views on key issues like social justice, tax, income equality, health care, and so on. Unlike most general elections, I sense voters will make up their minds early, and polling is reflecting this.

A few months ago, we contemplated the importance of this election in terms of the balance of power in Washington. The political scales have been tipping for the Democrats for a few years. Voters in America sense when politics swings too far to one side and push the system the other way. This sentiment expressed itself most directly in 2018 mid-term when the Democrats recaptured the House of Representatives. The Presidential and Senate elections are also subject to these trends and will express themselves in this election.

The Senate is controlled by Republicans with a three seat majority going into the general election. Senate Republicans must defend twice as many seats as Democrats in 2020 and 2022 which hastens the potential political changes. Furthermore, there are 4 Republican Senate seats in traditionally red states that are turning purple and in-play for Democrats-Maine, North Carolina, Colorado, and Arizona. Two of those states were carried by Hillary, Furthermore, inside the beltway pollsters say the Senate follows the Presidential vote. Current polls show Joe Biden with a substantial lead over President Trump. The legislative agenda for the next two years will largely be controlled by the Senate.

What to look for

Using a broad brush, a change in the Administration and a big night for Democrats will usher in a new palate of ideas and changes. Joe Biden and other Democratic leaders will be guided by the philosophy that the government has a central role in reallocating economic resources and addressing social inequalities when they are out of balance. This approach could translate into concrete policy changes in many areas.

For example, from a business tax perspective, we are likely to see the repeal of many of the pro-business provisions of the Tax Cuts and Jobs Act of 2017 (TCJA). This will include a repeal of the 20% special tax rate on pass-through businesses, a return to a 35% corporate tax rate, and smaller business expense deductions including interest on loans. See SVB Private’s articles on the TCJA.

Regarding individual taxes, I expect to see legislation that increases the top individual tax rates taxes on high earners plus a surtax on top. Furthermore, a return to the estate and gift tax exemption to pre-TCJA levels is sure to be included in the proposals. A new tax on wealth will also be proposed to address growing income equality in addition to our current tax on income. A wealth tax would represent a “sea change” in our current system which is built around taxing earning and income and not overall wealth creation. On a more positive note, Democrats and Republicans may be able to find common ground with the repeal of the state and local tax deduction (SALT) limitation which has proven unpopular with both parties.

Beyond taxation, the Democrats in charge will propose expansions of the Affordable Care Act for individuals uninsured and underinsured, reboot and fund green energy initiatives, and reduce tax incentives for fossil fuels. Furthermore, an increase in the minimum wage with a national minimum, promotion of unionization of the workplace, national legalization of marijuana and taxation, and gun controls will be in the legislative mix. Washington may have more work to do combatting COVID-19 and the continuing economic fallout this fall and winter. A lagging economy and resurgence of COVID-19 continue to represent an opportunity for the parties to work together to pass additional economic relief and stimulus. Recent comments by the Federal Reserve Chairman support the need for more economic help to workers in hard-hit industries.

What to do

Some of this may seem challenging to you depending on your personal and business situations. If voters deliver changes in Washington they are going to expect swift and decisive changes to the culture, politics, and policies, from Washington. As we’ve said in these pages over the years, keeping a keen eye on Washington and specifically the laws and regulations that matter to you and your business is now more critical than ever. It is a little bit like the stock market. Nobody knows when it will peak and valley, but you can with the best information available choose a reasonable path forward. Political leaders signal where they want to go. Seeing those signals is critical.

The next update in our Washington series will dig into the differences between the parties on top policy topics. If you have any questions or want to discuss how this may impact you, please do not hesitate to contact your SVB Private representative.


SVB Private is pleased to announce a partnership with Doug Fisher, a Washington Policy expert, who will offer a series of insights into a number of reform proposals making their way through Congress. Doug provides strategic insight into the political and policy developments in Washington which impact the wealth management business. Advising wealth management clients on business, tax, and retirement issues, he helps firms and their clients understand the legislative and regulatory landscape and how to maximize business opportunities.

Doug served as tax counsel to the U.S. Senate Finance Committee and led the development of the Roth IRA, Simple retirement plan, the health savings account, and the 529 college savings plan. He co-authored the Small Business Jobs Protection Act, the Balanced Budget Act of 1997 and the Health Insurance Portability and Accountability Act.

After serving on the Senate Finance Committee, Doug led Fidelity Investments’ federal government relations and public policy teams. During that time, he focused on financial services, tax, retirement, and health care policy impacting Fidelity and its clients.

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