Before leaving the Oval Office on Inauguration Day in 1993, George Herbert Walker Bush penned a note to his successor and left it on his desk. It ended:
…You will be our president when you read this note. I wish you well.
I wish your family well. Your success now is our country’s success.
I am rooting hard for you.
Good Luck,
George
It was a gracious sentiment, well expressed. And while it reflected the basic decency of our 41st president, it also encapsulated his reverence for the peaceful and dignified transfer of power, which is at the heart of our democracy. Despite the disgraceful scenes witnessed in Washington almost two weeks ago, the votes of Americans have been carefully and conscientiously counted and this transfer will take place on schedule on Wednesday.
Last Thursday, ahead of the inauguration, President-elect Biden outlined proposals, which, if implemented, could have profound social and economic effects as well as impacts on the broad direction of fiscal and monetary policy. Without a Senate majority, very little of this program would likely have been implemented. However, with the Democrats’ victory in the Georgia runoff elections, much more of this agenda could be enacted and it will likely help shape the investment landscape for years to come. So for investors, it is worth considering:
1. What is in the plan?
2. How much of it is likely to be implemented?
3. What could it mean for the economy?
4. How would it impact fiscal and monetary policy? And,
5. What does it mean for investors?
The Rescue Plan
In his speech, President-elect Biden laid out a two-step process—a “rescue plan,” which he wants to push through Congress as quickly as possible and a “recovery plan,” which he will outline in more depth in his address to a joint session of Congress in February.
The rescue plan, as proposed, would cost roughly $1.9 trillion. It includes:
• $160 billion to fund vaccination, testing and other health measures to end the pandemic.
• $170 billion to help schools and colleges reopen safely.
• Roughly $465 billion to fund a new round of stimulus checks at $1,400 per person.
• Roughly $350 billion to fund extended unemployment benefits through September, including coverage for gig workers and a $400 per week enhancement.
• $350 billion in aid to state and local governments.
• Other budget measures including an expanded child tax credit, more money for childcare, further aid for struggling landlords and renters and enhancements to the earning income tax credit and nutritional assistance.
• In addition to the budget measures, the Biden rescue plan calls for raising the federal minimum wage to $15 per hour.
Prospects For Implementation
There should be both a will and a way for most of this plan to pass Congress.
The will comes from the sheer urgency of the situation. Covid-19 has already killed 400,000 Americans, with a weekly death toll now exceeding 20,000. In addition, sharp declines in both employment and retail sales in December speak to the economic impact of the renewed pandemic. If federal money is going to help speed vaccinations or reopen schools in the current school year, it will need to be appropriated as soon as possible. This reality will put tremendous pressure on Congressional Democrats to paper over any internal differences and pass a rescue plan as quickly as possible.