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 Could this episode exchanged Goldman Sachs? Thank you What's the listing if you joined the show, we hope you subscribe on Apple podcasts and leave a rating on a comment. Then later this week for the weekly market update, were leaders ran the firm give a quick on what they're watching in markets. This fund ass was accorded on Tuesday January nineteenth in the year two thousand and twenty one. Thanks for this. All price references and market forecasts correspond to the date of this recording. This podcast should not be copied distributed, published or reproduced in whole or in part the information contained in this package. does not constitute research or recommendation from any Goldman Sachs Entity to the listener. Neither Goldman Sachs nor any of its affiliates makes any Rep

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