Market and Policy Impact of Georgia Election Results

January 6, 2021

With most of the votes counted, Democrat Raphael Warnock appears to have won his race and Jon Ossoff appears well-positioned to capture his seat as well. This increases the likelihood that Democrats will control both Senate seats in Georgia – especially when considering expectations for the outstanding remaining votes. With a 50/50 tie, control of the Senate goes to the party that holds the vice presidency, making a 50/50 Senate a Democratic majority.

We expect near-term market weakness as the market had responded well to the expectation of a divided government; it was not until this week that the market started to take the possibility of a Democratic sweep as more likely. Statements and actions during the Biden transition will be key in establishing the medium-term market reaction. There will be growing optimism for additional stimulus, especially for individual payments and infrastructure spending.

Policy implications for 2021

Democrats are expected to use budget reconciliation in 2021 to enact tax changes and implement other portions of their agenda (e.g., paid sick leave, child care, infrastructure spending). Budget reconciliation is allowed once per budget – generally, there is one budget passed annually – and requires a simple majority vote in the House and Senate (no filibuster). It generally relates to revenue decisions – taxes and spending – but it has limits; for example, current rules do not allow changes to Social Security, and policy changes come down to a decision of House and Senate parliamentarians.

With a narrow Democratic majority in the House and the need to get every Senator on board before passage, budget reconciliation debate is likely to have false starts and breakdowns in negotiations.  Passage is not certain, and compromises will be necessary. However, with reconciliation the only pathway for legislation with a simple majority, we expect Democrats to do everything possible to reach a final compromise.

Confirmations

Joe Biden has largely avoided polarizing picks, but he still has key positions that have yet to be nominated. Democrats would have control over setting confirmation votes and would ensure many more of Biden’s picks receive a confirmation vote. This will likely alter some of the individuals that Biden nominates to the final key positions and will have a significant impact on the agencies with boards. This would also put into play the votes of moderate Republicans. Judicial nominees will be expected to receive votes in this scenario versus limited consideration if Republicans maintained a majority. Senate rules still allow delays in confirmation votes, which were used effectively by Democrats in the minority to slow the confirmation process during the Trump administration.

Healthcare impact

If Republicans retain a Senate majority, the odds of any significant legislation that would negatively (or positively) impact healthcare is practically nil. However, even under a Democratic Senate, we would not anticipate major changes – like a public option or major action on drug pricing – but instead moderate changes like increasing subsidies for Affordable Care Act (ACA) plans and additional funding for healthcare more broadly. Additional funding for ACA subsidies (which would likely have to wait for a budget reconciliation bill), state Medicaid programs, public health initiatives and the National Institutes of Health is much more likely if Democrats win both Senate seats.

All expressions of opinion reflect the judgment of the authors, and are subject to change. The foregoing content is subject to change at any time without notice. Content provided herein is for informational purposes only. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

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