Alec Phillips, chief political economist for Goldman Sachs Research, talks about the policy outlook for the year ahead.
This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This is exchanges of Goldman Sachs, where we discussed velvets curly shipping markets. Industries in the global economy objects seaward, global, head of corporate communications. Your firm today
is the day before the inauguration of privilege, Joe Biden, emeralds
be talking about the policy outlook under a bite administration with democratic control in both the house in the Senate, albeit by a very narrow margins, and to discuss that a more were joined by our Philips chief.
Political economist requirements, acts research, our Gothenburg.
the problem lies,
before we dive into the policy outlook, talk a little bit about the sentiment in Washington, where you are right now, as we record this January nineteenth the day
before the inauguration. Well,
I mean, I think the first thing obviously, is that people are still in a state of shock
believe over what happened a couple weeks ago and the dust
still, obviously settling on man. Their lot of questions about you know how the impeachment trial in the Senate will kind of interact with everything else
it's going on, but putting that aside, I think there's a lot of anticipation about the incoming administration and what that means for mainly
for policy, but I think also just thinking
the last few days. Just also in terms of just how things are gonna look over there
explore years mean if you look at what we saw last week from present like bind in the roll out of
carbon relief package. It was amazing to see me I normal it was in
said we had
as preview several hours before the stage, a detailed and fifteen page fact she'd that went out embargoed, then
because all here like a couple of hours before the speech reviewing it, then he gave the speech. Then you
follow out for members of Congress. You had another announced, but the next day was all on a plan, so
you know it is a reminder of how things used to work, and even I mean maybe even the beginning of the trap administration. You had elements of that, but obviously there hasn't been as much of that over the last few years. I think
there is also a sense of just kind of returning to in a regular order,
I remember putting together a couple those fact sheets in rule out over the year, so it's nice to see that there are not totally out of style, so
as you mentioned prisoner, what put out to one point: nine trillion dollar economic rescue package aimed at the pandemic in the economic impact of it with them
it's getting control the Senate after the George, you run off elections. What's the outlook for the
in terms of both the size and likely time well,
it is a little bit up in the air, because there are essentially two ways that they could do. This one is
to try to get by partisan support, and you don't definitely have been some Republicans you're interested in aspects of what Biden put out last week. The other is they could also try to do it with just essentially democratic votes through what they call the reconciliation process and
you know, the difference is that if you assume that they use only democratic votes than they probably get, a bigger package is probably you know, oriented and slightly different ways were different things, but
you know they have the disadvantage of some limitations on what they can include. Potentially, and then you know the other disadvantages. There's a lot of kind of procedure
staff that goes into that I can make it take longer bipartisan.
Support obviously has a political appeal, and
One would imagine that president by President Elect pines and be present binding will, if he chose
and figure out how to get republican support for it
the odds of getting one.
point. Nine trillion in curbing release package are probably
pretty low, our
education is maybe one point one trillion something like that. I mean that's obviously sort of an arbitrary number. It certainly could turn out to be higher or lower than that
I would imagine that if they,
initially tried again Republic in support
Some republican support for it. You end up, you know,
discussing, maybe a somewhat smaller package if they
doesn't work, then maybe they go reconciliation rout somewhat larger package. In the end you know I can imagine anything from like several hundred billion dollars. Does an initial package all the way up to whom
one and a half trillion.
Depends a lot on. You know, what's happening at that point with cold
spread and things like that and then, ultimately, how much Republicans or there is here, I think
probably under any scenario. We get something done, I think by March, if they
with a bipartisan rout, and it looks
like maybe they can get
sixty boats in the Senate. For that, then, maybe that's a little bit quicker if they have to
here's the reconciliation process and pass, which is democratic votes, that's gonna Technical, the longer, because of course, you ve got enough.
the democratic senators you're gonna need
Fifty democratic senators, although for the same thing and lining that up probably not that much easier than lining up sixty senators.
It's also not always easy to get taxes through in a closer divided Congress. The present lack has proposed raising the corporate tax from twenty one percent, twenty eight percent, and also raising taxes on individuals making more than four thousand dollars a year. Given the closeness,
of the margins for Democrats in the Senate and the house? What do you think the outlook for
policy is well, I think,
on the individual side?
the odds of tax is going up on someone in some way, you know are very high, and the question is: where does that money? Go
So as an example, I think rates
on top incomes or whether, as four hundred thousand another cut off are for
likely to arise, but then that revenue,
probably against turned around and put into other things like, for instance, restoring the deduction for state local taxes, which was limited.
Twenty seventeen. My guess is that you probably see some other changes that then get turned around, so tax increases they get turned around
put into maybe you know more low and middle income tax cuts so
overall. I think the odds of
total individual taxes rising and allow the questions. Just
You know how are they rearranged on it?
corporate sign, it does seem more likely that we see a net
in Greece, but there I mean, like you, said you gotta, very closely divided Senate, and for that matter I should say a very closely divided house too,
and so I dont think, they're gonna be able to get all that close to twenty eight percent
Best gases, like maybe twenty four percent or twenty five percent, or something like that
yeah, maybe some other corporate changes around the edges.
and that they use that, to you know, basically pay for whatever it is that they decide to spend on whether that infrastructure, healthcare or something else, and I think the big.
Question that we don't know and is all probably
determine how much get spent, but also how much taxes rise is
much there willing to add the deficit not for the near term, covert relief, stuff, but
for the bigger projects later in the year, because
you know, ultimately, if they don't want to increase taxes by more than a in a sort of incremental amount, which I think kind of where the sentiment is right now
then that's going to really limit how much they have to spend on other things like deficit
concerns are a lot more now than they were several years ago
and that may ultimately just leave them to expand the deficit, and if they do that, then maybe taxes don't rise that much
You mentioned health care infrastructures, some does the chancellor's focused. Where do you think it is most likely to allocate any tax revenue that raises,
so any infrastructure has clearly been the initial focus of the incoming administration, and I think you know it's clear that something is going to happen there.
right now, if you were to listen to the way people described, it is
carbon released and then a second package. You do mid year, maybe two three, something like that.
it involves infrastructure and maybe some renewable energy incentives and sort of climate focused items finally
by corporate
exchanges- and you know whatever other revenue can be raised-
I would imagine that either they're going to need to do another bill on top of that or they're going to have to expand that to include some other things. In the reason I say that is because, if you look at the Biden agenda, I mean infrastructure was clearly one big part of it, but you had
health insurance reforms, whether its expanding the ace yea or lowering the Medicare age child
care initiatives a whole bunch of stuff on education, and it's kind of
for me to see leaving all of those things aside and instead just doing infrastructure
But the challenge I think they're gonna have is that they're not gonna, get that many shots at doing something in their wake
to use again to you not to get into the specifics, but the reconciliation process, again:
theory. They have two, maybe three shots reconciliation before the midterm election
you know, we know one of those could end up
in carbon relieved at the beginning of the year, one might be infrastructure and then maybe there's a sir, but
there's a limited amount of political capital when, on a limited amount of time to do all that, and so I think
you know: they're gonna have to figure out what the balances between infrastructure, which is clear and that all these other things
so. I am personally a veteran of a couple. Nasty debt limit, votes or- or I should say, votes to, raise the debt limit. I've been on the side of administrations that need that increase. Never popular vote Congress
Much of a risk is the debt limit. Our votes to raise the debt limit. This you well
The good news is that, usually, when you have Congress and White House controlled by the same party, it's easier anyway to get it done, and I would say,
because we're already gonna have some major legislation moving through
you can at least imagine a scenario where the debt limit gets tacked on to one of these other big bills. It doesn't
how to move on its own? If you know far from guaranteed that that happens, but it is worth pointing out that you can use that reconciliation process for free thing spending changes, tax changes of raising the debt limit.
everything's you did so
I mean frankly, I would hope that what happens just for the sake of financial markets and for that matter, the broader economy in general public, is that they figure out a way to get a debt limit, increase or suspension or whatever into
the reconciliation bells passing earlier in the year
A of that relies reversed expiration when the debt limit chicks back into effect.
they don't? You know, then, the one challenge they have is the Treasury usually has a few hundred billion dollars of whether room
usually lasts, while by it
couple of months at least
if you want a billion dollars, doesn't get you that much when the deficit is. You know two trillion dollars, so you know.
can't figure it out. Then we're gonna have a bumpy August, probably ITALY,
seems happened the summer. I'm not sure why, but anyway,
from fiscal measures which we ve been talking about, what effect might democratic controls and have on present
violence ability to
firm, the official sees not bay. We ve scenes of hearings today and what
other non fiscal and regulatory policies. Will the outlet for those given
still majorities
yeah, I mean so probably
biggest point to make, is that for
everything that's not fiscal unit.
sixty miles in the salmon, and that essentially means that things, like you know
the minimum wage or making these
states or
sort of other big things like that that are theoretically on the agenda
be much more difficult to do in some of these fiscal items
that said, Anne
point out. Actually one of the thing about that, which is that there has been discussion of eliminating the filibuster, but that looks pretty unlikely. Given the fifty fifty split there seem to be at least a few Zanna democratic
I want to do that so soon
that's the case, then you know
you basically have to the facts of the
Senate democratic Control on regulatory issues, one is
like you said you have is
easier path for present, like binds nominees than under a republican Senate,
you know, doesn't really affects the cabinet level because a lot of them were nominated for we knew who is gonna control the Senate, but it problem
What does a fact
run down, most of whom have not actually been nominated yet and
One would imagine that those people are maybe gonna be slightly more pro regulatory than they were.
Have been under I republic, inside
The other thing that I think is important is that, while you can imagine that there are a bunch of these issues that probably won't get sixty votes in the Senate, a lot of them will nevertheless come up and down.
You put to a vote and it works.
create some uncertainty and so like as an example, the minimum wage-
Fifteen dollar minimum wage is pretty unlikely to pass when it needs
On the other hand, it seems, pray,
likely that will have a vote on it at some point and it also seems pretty likely that will then generate some uncertainty about some. You no compromise proposal or something else. Is there a lot of issues that even further
They probably won't actually change but, though, create a lot of uncertainty for financial markets, and just you know, in sort of the public debate, because
majority leader tumor. Will you not be controlling the agenda and will put some of these things are provided
all right out. Well, thanks for joining us today, thanks hope.
A peaceful inaugural day down there in Washington in here in New York, for that matter that
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