A democratic victory in Georgia could possibly be good for the markets

Supporters listen as Democratic US Senate candidate Jon Ossoff speaks at a press conference in Grant Park after the election in Atlanta, Georgia, the United States, Nov. 6, 2020.

Dustin Chambers | Reuters

Wall Street and Washington operate today on the assumption that Republicans will retain control of the Senate after at least one Republican wins a seat in the Georgia Senate runoff on January 5th.

It seems reasonable to expect that the Democrats will not win both races as they are outdone by their GOP opponents and many people in this highly polarized era prefer a divided government, even in a state that is about to turn blue .

However, Georgia surprised the nation by choosing Joe Biden in the presidential election.

Stacey Abrams, the influential Democratic politician who turned Joe Georgia over, is working hard to get both Democratic Senatorial nominees into the upper chamber.

Georgia could then surprise the markets in January if it stirs up again. Contrary to popular Wall Street wisdom, this might only be good for the markets.

Why am I addressing that, you might ask?

Well, conventional wisdom suggests that even if Democrats take control of the Senate, the narrow victory will mean that a Biden government will be forced to set a new agenda.

Without a clear mandate and sufficient votes, the new government will target the center and make only minor changes to tax law, stimulus plans, infrastructure spending and health care reform.

Not so fast, I say.

Does spending trump higher taxes?

Aside from Senate GOP scrutiny, even the tightest of Democrats’ scrutiny allows them to be far more ambitious on taxes and spending than is currently believed. And while higher taxes are anathema to risk markets, much higher spending could more than offset those potentially negative, potentially overwhelming tax hikes through spending plans that boost both employment and corporate profits.

The budget balancing process, which can be carried out by the smallest majority, allows any administration to pass large-scale programs with a single vote advantage in the Senate, as long as the legislation is deficit-neutral. (I’ll get to it sometime.)

The reconciliation process states that household bills, including raising the federal debt ceiling and other spending plans, only require a one-vote victory in the Senate while the debate is limited and the filibuster cannot be used.

The Trump administration, for example, used the voting process to pass their $ 1.5 trillion tax cut and somehow managed to avoid the demand not to increase the deficit.

In other words, as with the Trump administration and other previous administrations, voting can be used to achieve many Biden goals under the current rules.

However, it is a moot point if Republicans only win one of the Georgia runoffs.

Mitch McConnell would remain as the Senate majority leader, at least that way forcing the Biden administration to abandon ambitious plans to spend trillions more on aid, incentives and infrastructure. restrict expansion of the Affordable Care Act; or radically revise other government programs.

However, if the Democrats do manage to take over the Senate, I would bet that having a Senate tied President Biden and Vice President Harris may not feel as constrained as many are currently suggesting.

A 50:50 Senate doesn’t guarantee Democrats an easy path to reform, with moderates like Senator Joe Manchin, DW.Va., in the mix, but it does open the door significantly. Also take into account that Senator Chuck Schumer, DN.Y., could face an advancing primary challenge in 2022 that could force him to take a more liberal approach.

So, while I bury the leadership, think again about who believes that a single majority vote in favor of the Democrats will limit their ability to raise taxes, increase spending, and expand the ACA.

One-party rule has its advantages which, in this case, as in other administrations, may surprise many in Washington, but will certainly surprise many, many more on Wall Street.

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