Election Results Signal Less Stimulus, More Gridlock

Plus, Covid vs. the economy  [The Fisc](   By Yuval Rosenberg and Michael Rainey Election Results Signal Less Stimulus, More Gridlock Although the final numbers aren’t in yet, it looks like the 2020 election will deliver a divided Congress to whichever party claims the White House. Democratic hopes for a “blue wave” fell by the wayside pretty quickly Tuesday night, and it now seems likely that Democrats will keep control of the House while Republicans will maintain their majority in Senate following big wins for a handful of GOP incumbents in some closely watched races, including Susan Collins in Maine, Thom Tillis in North Carolina and Lindsey Graham in South Carolina. And while former vice president Joe Biden now appears to have an easier path to 270 Electoral College votes than President Donald Trump, without unified control of the government, either man will have a tough time advancing his agenda. The most likely outcome in numerous important policy areas is a continuation of the status quo, with little room for major changes. “[F]or now, the main takeaway appears to be that whoever wins the presidency probably faces continued gridlock in Congress,” Jonas Goltermann of Capital Economics wrote Wednesday. Here’s how a divided government could play out on some key issues. Smaller coronavirus stimulus: Democrats have been seeking a coronavirus package worth at least $2 trillion, and a blue wave could have produced legislation totaling even more. But with the Senate in Republican hands, the stimulus will likely be much smaller. Senate Majority Leader Mitch McConnell (R-KY) — who cruised to reelection and is expected to return as leader, assuming Republicans maintain control — said Wednesday that an aid package would be a top priority, even before the next administration is sworn in, and that he was open to including aid for state and local governments, a key point of disagreement in previous negotiations. “We need another rescue package,” McConnell [said](. “The Senate goes back into session next Monday. Hopefully the partisan passions that prevented us from doing another rescue package will subside with the election. And I think we need to do it and I think we need to do it before the end of the year.” Whether Trump would be interested in signing such a bill remains an open question, especially if he loses. But regardless of whether a stimulus package is sent to a Trump or Biden White House, it will almost certainly be smaller than it would have been had Democrats managed to pull off a clean sweep. “With Republicans still in charge in the Senate, we’d be surprised to see a stimulus bill early next year much in excess of $500 billion, far less than the $2 trillion we expected if Democrats had won,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, [said]( Wednesday. The markets sent signals Wednesday that traders were adjusting to the prospect of a smaller stimulus. “The yield of 10-year US Treasuries has fallen by about 10bp since the results started coming out overnight ... and the yields of other high-grade government bonds have fallen too,” Goltermann of Capital Economics said. “The expectations of a big post-election fiscal deal had been a key factor pushing US bond yields higher over the past few weeks.” No big changes for tax policy: Joe Biden wants to increase taxes on businesses and the wealthy in order to pay for some of his ambitious agenda, which includes huge spending increases on health care, education and green energy. But a Senate controlled by McConnell is very unlikely to approve such changes, which include reversing some of the tax cuts Republicans passed in 2017. Similarly, a Trump administration would have a difficult time passing more tax cuts with Nancy Pelosi (D-CA) in control of the House. Smaller tweaks for health care: Biden has proposed expanding the Affordable Care Act, but a divided Congress probably eliminates that possibility. “If Republicans keep their majority in the Senate, Biden's more expansive plans for addressing health care affordability by expanding ACA subsidies and adding a public option seem dead in the water,” Larry Levitt of the Kaiser Family Foundation [said](. Biden could still make numerous tweaks to the health care system through executive actions, just as Trump has done. Levitt [listed]( a few of those potential changes: “Put scientists front and center, Extend ACA open enrollment, Reinstate ACA outreach funding, Limit short-term plans that don’t cover pre-existing conditions, Undo family planning funding restrictions.” Biden would not be able to eliminate the threat to the Affordable Care Act posed by a lawsuit seeking to invalidate the law. Covid vs. the Economy: What Mattered to Voters It’s the pandemic, stupid. That play on James Carville’s famous “It’s the economy, stupid” mantra from Bill Clinton’s 1992 presidential campaign was occasionally repeated in [media coverage]( of the presidential election and may have been accepted as conventional wisdom among [some political strategists]( — and not just Democratic ones. The reality was far more complicated, if exit poll results are to be believed. Of course, given the [big problems]( with this year’s [polls]( and [polling-based forecasts]( you probably want to take those exit poll results with a spoonful of salt. Still, the data suggest that voters were deeply divided about what mattered most to them, and that Carville’s old mantra about the economy still held true for many, especially Trump supporters. Early results from exit polls conducted by Edison Research for the National Election Pool show that just over a third of voters said the economy was the most important issue in determining their vote. Racial inequality was the top issue for 21% of those surveyed, while fewer than one in five voters said the Covid-19 pandemic mattered most to them. (By contrast, the Associated Press [VoteCast]( a survey of the electorate conducted over several days, found that 41% said that the coronavirus pandemic was the most important issue facing the country, while 28% cited the economy and jobs.) About 10% of voters said health care policy was their top issue, a sharp drop from recent election cycles. In the exit poll, voters who backed Trump were more likely to cite the economy and crime and safety as top issues, while Biden backers were more likely to point to racial injustice and the pandemic. (Voters were also about three times as likely to say that the candidates’ position on the issues, rather than their “personal qualities,” mattered most to them.) Voters who pointed to the economy broke overwhelmingly (82%) for Trump, while those who cited the pandemic went overwhelmingly (also 82%) for Biden. While 51% of voters in the exit poll said it was more important to contain the virus now, even if it hurts the economy, Republicans were far more likely to prioritize rebuilding the economy, even if it hinders efforts to combat the pandemic. “In short, voters seemingly saw a dichotomy between the economy and the public health response to the virus, and where they stood on that divide fell along deeply partisan lines,” Vox’s Julia Belluz [writes](. “Republican voters overwhelmingly wanted the economy to restart — something Trump has long been advocating for — more than they wanted to see the virus controlled. They also viewed the economy as a key issue, more so than the pandemic, when deciding whom to support.” Belluz notes that Trump won in states with the greatest density of new Covid-19 infections —Utah, Montana, Wyoming, North Dakota, South Dakota, Nebraska, Indiana. Those are all solidly red states that were expected to vote for the president, but the ravages of the virus apparently did not do much to change voter preferences in those hard-hit states. The bottom line: While public health experts and others, including Biden, have emphasized that controlling the virus is key to reopening the economy, Trump supporters embraced the president’s position that the virus is at least somewhat under control and his emphasis on revitalizing the economy despite rising Covid case counts. Read more at [The New York Times](. Number of the Day: 70,873,269+ While he hasn’t yet secured the 270 Electoral College votes needed to win, former vice president Joe Biden has already collected a [record total]( in the popular vote, topping the 69,498,516 Barack Obama received in 2008, when Biden was his running mate. (Yes, the population of the country has grown by some 25 million since then.) President Trump is reportedly also on track to surpass Obama’s 2008 vote count, becoming the second-highest vote total in U.S. history. Send your tips and feedback to yrosenberg@thefiscaltimes.com. Follow us on Twitter: [@yuvalrosenberg]( [@mdrainey]( and [@TheFiscalTimes](. And please tell your friends they can [sign up here]( for their own copy of this newsletter. News - [Congressional Democrats’ High Hopes Dashed as GOP Clings to Senate Majority, Scores Unexpected Gains in the House]( – Washington Post - [McConnell Says New Stimulus Bill Is Top Priority When Senate Returns Next Week]( – Washington Post - [Coronavirus Relief Bill, Omnibus Spending on Tap, McConnell Says]( – Roll Call - [Pelosi’s Power Takes a Hit With Diminished U.S. House Majority]( – Bloomberg - [‘Dumpster Fire’: House Democrats Trade Blame After Tuesday’s Damage]( – Politico - [Trump Campaign Mounts Legal Barrage in Three States as Narrow Margins Raise Stakes for Battles Over Which Ballots Will Count]( – Washington Post - [USPS Data Shows Thousands of Mailed Ballots Missed Election Day Deadlines]( – Washington Post - [Judge ‘Shocked’ at Postal Service, May Order Head to Testify]( – Bloomberg - [Unclear Result a Recipe for Disinformation, Researchers Say]( – New York Times - [Democrats’ ‘Blue Wave’ Crashed in Statehouses Across the Country]( – New York Times - [Fed Wants Low Profile but May Repeat That the Economy Needs Stimulus]( – CNBC   Views and Analysis - [Biden Looks Screwed Even if He Wins]( – Ryan Lizza, Politico - [Mitch McConnell’s Senate Might Be Where the Biden Presidency Goes to Die]( – Paul Waldman, Washington Post - [Can We Finally Agree to Ignore Election Forecasts?]( – Zeynep Tufecki, New York Times - [When a President Sabotages His Own Country]( – Nicholas Kristof, New York Times - [There Was a Loser Last Night. It Was America.]( – Thomas L. Friedman, New York Times - [Markets Can Kiss the Blue Wave Goodbye]( – John Authers, Bloomberg - [The Election That Made Things Worse]( – Stuart Rothenberg, Roll Call - [Biden May Be Winning, But America’s Future Isn’t]( – Francis Wilkinson, Bloomberg - [Who Gets the Tax Benefit For Those Checkout Donations?]( – Renu Zaretsky, Tax Policy Center Copyright © 2020 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website, [thefiscaltimes.com]( or through Facebook. The Fiscal Times, 399 Park Avenue, 14th Floor, New York, NY 10022, United States Want to change how you receive these emails? [Update your preferences]( or [unsubscribe](