Legal challenges aside, Joe Biden & Kamala Harris will now become the next President & Vice President of the United States. But despite the worst recession since the 1930’s high unemployment, the worst riots since 1968, and the poor handling of the coronavirus pandemic, this election was much closer than expected.

With run-offs for both Senate seats in Georgia taking place in January there is a possibility (although unlikely) the Democrats will ultimately achieve a “clean sweep” having retained control of the House and gaining control of the Senate.

So the most likely outcome is a divided government with Biden as President, the Democrats retaining control of the House and Republicans retaining control of the Senate.

So what are Joe Biden’s key policies?

Taxation: Biden plans to raise the corporate tax rate to 28% (reversing half of Trump’s cut to 21%), return the top marginal tax rate to 39.6% (from 37%) and tax capital gains and dividends as ordinary income.

Infrastructure: Biden plans to spend $1.3trn over 10 years. 

Climate policy: Biden aims for the US to reach net zero emissions by 2050 by raising the cost of fossil fuels & boosting the development of alternatives (possibly with a carbon tax). He would take the US back into the Paris Climate Agreement. 

Regulation: Biden is likely to end the era of deregulation. 

Healthcare: Biden wants to strengthen Obamacare and limit drug prices.

Trade and foreign policy: Biden would likely de-escalate tensions with Europe and strengthen the alliance, work with international organisations like the World Trade Organisation, work to re-establish the nuclear deal with Iran and adopt a more diplomatic approach to dealing with trade and other issues with China (working with Europe and Asian allies in the process). 

Fiscal stimulus: Biden would support another round of fiscal stimulus of around $US3 trillion or so.

So what can we expect from divided government?

Biden’s proposed tax hikes are extremely unlikely to pass into law given blockage from the Senate.

• Some form of fiscal stimulus is likely to be agreed, with Senate Majority Leader McConnell saying after the election that, “I think we need do it.”, It could come before the end of the year while Trump is still president but is likely to be smaller at say $US1.5 trillion rather than say $3 trillion had the Democrats won the Senate as well.

• Joe Biden and Mitch McConnell already have a strong working relationship so may be able to get something done on infrastructure spending and other Democrat spending priorities around health care and education. There may be some incentive for Senate Republicans to cut a deal with Democrats if they can make Trump’s corporate tax cuts (most of which expire in 2025) permanent.

• The Senate is likely to limit what Biden can do on climate policy where spending & tax measures are required, but a lot can still be achieved by regulation of the energy sector and the US will likely re-enter the Paris Climate Agreement.

• Biden is likely to re-engage and strengthen relationships with traditional US allies and international bodies like the WHO and WTO. The US is also likely to re-enter the Trans-Pacific Partnership (now CPTPP) and the Iran Nuclear Deal.

• Trade wars are likely to be toned down with the US relying on a more diplomatic approach working with US allies to resolving trade differences with China, using the prospect of cutting Trump’s tariffs as leverage. This doesn’t mean that Biden will be “soft on China” just that a different approach will be used to address US grievances.

• A Biden presidency is likely to take a more expert based approach to controlling coronavirus ahead of the full deployment of vaccines. This could involve a more coordinated approach and partial lockdowns in the short term, eventually leading to a more confident reopening.

• Biden will seek to heal divisions and unify the US that were inflamed by President Trump. This may be helped by having Kamala Harris as VP who may very well be the Democrat nominee for President 2024. He will also support the rule of law and reinforce US institutions that have served it well.

Share markets have so far responded well to news of Biden’s win, but whether this continues may depend on who controls the Senate - Biden’s corporate tax hikes would probably hit a wall in a Republican controlled Senate.

More to come.

Rick Maggi