When you think about the economic and market implications of a prospective Democratic sweep in November, it’s not enough to come to the rather obvious conclusion that pro-growth policies could ultimately offset tax hikes.
Note that I use the word “could,” and as far as “offset” goes, quite a bit depends on what effect you’re looking to cancel out or otherwise mitigate. For example, tax hikes may be a drag on economic activity, but if fiscal expansion and better financial outcomes for middle-income America lead to more robust consumer spending, the net result could be positive for growth.
In markets, that possibility could manifest in sequencing that finds equities selling off in knee-jerk fashion to news of a likely Democratic victory (as investors price in the mechanical hit to corporate bottom lines from higher tax rates) only to recoup losses in the medium-term as investors come to the realization that fiscal stimulus is “the new QE,” to quote Nomura’s Charlie McElligott.
“The boost to growth from fiscal stimulus would outweigh the negative effects of tax increases, particularly in light of the fact that the increased tax revenue would go to fund new spending,” Goldman’s Alec Philips wrote, in a note dated Monday.
But it’s not as simple as all that. And it’s not as simple as saying that which party holds the Senate matters more than who occupies the Oval Office, either. As Philips went on to say, “if Democrats win control of the House, Senate, and White House, the size of the Senate majority might be just as relevant as who controls it.”
This is a crucial discussion for markets, and Philips explained why. “In general, the more seats the majority party has, the farther from the political ‘center’ the senator who casts the marginal vote is likely to be,” he wrote, adding that,
For example, Exhibit 2 ranks senators by their score on economic ideology using an index known as DW-NOMINATE. While new senators next year will change these rankings, a 50-seat Democratic majority that relies on the most centrist Democrat for support would be notably more centrist than, for example, a 53- or 54-seat Democratic majority. This would be a consideration particularly with regard to fiscal policy, as the majority party can pass tax changes, and some spending changes, with a simple majority in the Senate via the “reconciliation” process with only 51 votes.
Beyond that, Goldman reminds you that depending on the size of a hypothetical Senate majority for Democrats, the filibuster may not survive. This became a hot-button issue when Donald Trump and Mitch McConnell moved to rush Amy Coney Barrett through the confirmation process ahead of the election.
Although Joe Biden has a history of supporting the filibuster, he indicated in July that he is open to abolishing it – thus allowing the Senate to pass legislation with a straight majority – in the event Republicans become even more recalcitrant under a Democratic administration. “It’s going to depend on how obstreperous they become”, he said, at the time.
“If Democrats take control, I believe they will end the filibuster in the opening weeks of January,” Ted Cruz said this month.
Politico notes that while “both progressives and challengers in competitive Senate races as well as Biden, have shied away from explicitly calling for changes to the Supreme Court or to the filibuster,” Chuck Schumer has “declined to rule out anything.”
Read more: What’s Really At Stake In November
There are two ways that eliminating the filibuster may impact spending, Goldman’s Philips said Monday. “First, annual spending bills (‘appropriations’) generally need 60 votes to pass in the Senate [but] absent filibusters, a Democratic majority would likely increase discretionary spending more, and devote a greater share to non-defense programs, than if bipartisan support was needed,” he remarked.
Democrats might also move to establish fresh initiatives “includ[ing] things like a new infrastructure program or a ‘public option’ for health insurance,” Philips went on to say.
This is seen by some as preferable to packing the Supreme Court, another option which is reportedly on the table in the event of a “blue sweep.”
“Democrats need not… take on the political risk associated with packing the court, in order to reduce the Supreme Court’s power. By eliminating the legislative filibuster and reducing the threshold for passing Senate legislation to a simple majority, they can rebalance the scales in Congress’ favor,” Roll Call wrote Monday, adding that “such an approach has myriad advantages over packing the court.”
The linked article cites Marty Paone, a three-decade Senate floor veteran. “[Eliminating the filibuster] won’t be seen as as radical by the public,” Paone remarked. “Packing the Supreme Court is tailor-made for being vilified, for being outside the norms.”
While Goldman doubts Democrats would move to immediately abolish the filibuster, preferring instead to pass a stimulus bill in early 2021 with some modicum of bipartisan support that would help legitimize the legislative process under the new administration, the mere prospect is well worth pondering.
As Philips noted, “the filibuster is most important in areas outside of fiscal policy.” He provided a few examples: “Changes to regulatory policy, antitrust law, immigration, and the minimum wage, among others, almost always require 60 Senate votes.”
Perhaps not for much longer.
Anyone who studies history knows the pendulum swings back on forth and the window of opportunity stays open for only a small time and then closes. If I was a Democrat I’d face the stark reality that it might take decades before that window ever opened again. I’d take the Republicans to the woodshed.
100%. But no court packing.
That crocodile promised me he wouldn’t eat me alive if I went swimming with him.
The number of justices on the Supreme Court has changed several times over the last two centuries. There is no reason not to enlarge the Court now. Besides rectifying the imbalance caused by Republican opportunism, it will also reduce the impact of activist judges as well as the influence of political allegiance masquerading as legal theory (i.e. originalism).
I, for one, strongly favor a 15 member Supreme Court.
No, the right path is to go big. End the filibuster, pack the court, initiate it first thing in January-February. PR and DC become states before June. New voting rights act. Election security act. in elections. Public health care option. Green New Deal. Clearly articulate why you are doing it. Do it all before 2022 elections. Enact it all and then let the country decide whether a majority is better off. If not, we’ll return to theocracy and slavery. But I don’t
That got garbled. Here’s the proper version:
No, the right path is to go big. End the filibuster, pack the court, initiate it first thing in January-February. PR and DC become states before June. New voting rights act. Election security act. Address the role of money in elections. Public health care option. Green New Deal. Clearly articulate why you are doing it. Do it all before 2022 elections. Enact it all and then let the country decide whether a majority is better off. If not, we’ll return to theocracy and slavery. But demographics does not favor that. Time for the US to leave the 19th century and enter the 21st. That won’t happen without bold action.
I would agree with that, but I would also add Guam, North Marianas, American Samoa and US Virgin Islands to the list of new states. It would mean there are no US territories (colonies) that are unrepresented. It would also remove the structural skew in the Senate.
Yup! Eliminating the filibuster and curbing SCOTUS power through procedural means (reduced jurisdiction or working around decisions) will be the name of the game in case of a blue sweep. I, for one, won’t fault the Democrats if they finally employ a few dirty tricks during their narrow window of opportunity; I’m not partisan, but I am tired of seeing trickery triumph over principles. Time to teach the opportunistic right that actions have consequences.
Eliminating the filibuster is short term thinking. The senate structurally favors the GOP and, this cycle notwithstanding, will continue to do so for a while. The filibuster is crucial to have down the road when the dems are back in the senate minority again and again and again…
I like the idea of simply reverting the filibuster back to its pre-1970s version in which Senators actually had to stand on the floor and filibuster.
The current system reminds me of an old Star Trek episode in which the Enterprise found a planet that was at war with another planet. But there were no bombs or explosions or anything like that. Instead, it was all done via computers, and if an area registered a “hit,” the people in that area had to report to some termination machine where they were killed. This had been going on for years, if not centuries.
Captain Kirk destroyed the computers, and the people freaked out. They said that now real bombs and lasers and whatnot would be used. “Exactly,” he said. It’s only by experiencing the real horrors of war that you’ll find a way to end it.
Similarly, the current filibuster is too painless. Keep it, but make it painful enough to use that only when the minority feels very, very strongly about something will they use it.
Given all of the advances in prosthetic exoskeletons after two decades of war, a return to standing-filibuster rules might not pack the same punch as it used to.
New rule of order: no cybernetic enhancements on the Senate floor?
The GOP no longer truly represents a rotating majority of Americans. They have a solid, what, 40-45% voting bloc and use the various veto point of the system to push a far more radical extreme agenda that what the voters desire.
I think the Ds need to address the inherent systematic blocking points that devalue some people’s votes (just make Puerto Rico and/or D.C. full state(s) with 2 Senators each and the whole Senate issue collapses).
But, IMHO, all that will eventually do is lead to the emergence of either a new GOP or another party (after all, the Federalist Party and the Whigs had their time too) that would reorganise the political scene. I wouldn’t, for example, consider African Americans or Hispanics as genetically Democrats. Culturally speaking, a large chunk of those communities are conservative. It’s only the ‘white first’ bent of the modern GOP that makes it incredibly hard for them to vote GOP…
Such a reorganisation of the political parties would not solve the eternal dilemma between progressives and conservatives but it would make for a saner political system…
We really need to change the conception that the GOP is “conservative”. There is NOTHING conservative about the GOP. To keep saying it really clouds all the issues
Indeed, the most radical, least conservative idea I can imagine is to persist in behaviors that we know will eventually make large parts of the planet uninhabitable by humans and other species.
If Dems take House Senate and WH, their first act should be a new Voting Rights Act to eliminate voter suppression, vote miscounting, and gerrymandering. Without those things, the Rep party in its present incarnation cannot retake power. That should be done in week 1.
Court packing will be more palatable if McConnell uses the rump months to confirm yet another Supreme Court Justice (e.g. if Thomas steps down) or a passel of lower court judges. I think Dems will have to seriously consider it regardless, as a very conservative Court could overturn whatever legislation Dems pass – even a new Voting Rights Act.
DC and Puerto Rice should be states with Congressional representation. The USA shouldn’t have colonies.
Add Citizens United and the role of money into campaign financing to the list of actions that would be commendable for them to address in the first week.
Game theory would say go nuclear or go home.
The timing might be good for them. As COVID starts being a rear-view mirror issue a year from now, jobs and the economy will recover at a quicker pace. Focus on jobs and they should be able to keep the Senate.
The challenge with Citizens United was that the Supreme Court turned it into a first amendment issue. We’d either need the court to reverse course or pass a constitutional amendment. Sadly, we are likely stuck with Citizens United for a long time. Good ol’ corporate personhood going well beyond its intention!
dayjob, you are right about Citizens United. But how about legislation that requires complete disclosure of ever donor at every level of the current opaque organizational structures of donation so all would now who is behind the money. No more 501(c)4 anonymity would be one veil to lift and there are plenty of others.
Oh, those democrats, you mean the “Vichy Democrats,” the Democrats who have been complicit these so many years.
A few notes:
1. For as much as Republicans scream about liberal extremism, note that the baseline for Republicans in exhibit 2 starts just under 0.4 and ends just under 0.6 with the exception of a few outliers in both directions. For Democrats, it starts just under -0.2 and ends just over -0.5. Also, note the number of Republicans up near 1.0. Obviously, this scale isn’t the be all, end all, but it passes the sniff test.
2. I think court packing should depend on how aggressive the Supreme Court becomes in striking down laws passed through Congress. If, for example, they strike down the ACA under auspicious pretenses, court packing should very much be in play.
3. The filibuster should not exist. It’s not actually part of the Constitution and we have 3 branches of government that already serve as checks and balances. Creating additional hurdles to passing legislation is part of the reason why we are continuously gridlocked, and the filibuster has been neutered at this point anyway.
With Trump having a 10%-20% chance of winning, it is simply idiotic to think that the Biden agenda is not 80% to 90% priced in already. GS is out to lunch. Schumer comment is clear as day signal that the filibuster boast has sailed. What Biden says he will or will not do is hard to have any confidence in. He seems malleable, he has morphed into “get along with the Left Joe” and there is no spine left. Which is probably just fine with most Democrats where the centre seems overestimated. Court packing is hard to say—there may be some centrist or near centrist that would not allow themselves to be whipped into a position that has been tradition for 150 years and is overtly political with consequences for future generations, but then again that has rarely stopped politician in the past, so perhaps the GOP is right to worry about that.
I think a good idea for debates is having a red ‘lie’ light and tally window behind each of the debaters which would flash red every time a lie was told and each lie told would raise the lie tally so at the end everyone would know who was the worst lie teller and by how much.