The eyes of the political world were squarely on Georgia on Tuesday, January 5th for the runoff elections for both of Georgia’s U.S. Senate seats. At stake was control of the Senate and, consequently, President-elect Joe Biden’s ability to move his policy agenda forward in the first two years of his presidency.
Ultimately, Democratic candidates Jon Ossoff and Raphael Warnock defeated Republican candidates David Perdue and Kelly Loeffler in both runoffs. With both Democratic candidates taking the seats, there is now a 50-50 tie. This means Vice President-elect Kamala Harris will cast any tie-breaking votes as the President of the Upper Chamber. President-elect Biden now has more leverage to carry out his policy agenda and push through nominations as he sees fit.
With judicial nominees, a stimulus deal, infrastructure, health care measures and tax and spending policies at stake, the Senate races in Georgia took on an intensity usually reserved for presidential races. The implications this Democratic sweep has for the incoming Biden-Harris administration cannot be overstated.
Implications of a Democratic Majority
Perhaps the most significant impact of a Democratic Senate majority, along with its continuing majority in the House, is the ability to use the reconciliation procedures of the congressional budgetary process. Use of the reconciliation procedures is the easiest way to pass major economic legislation that could modify President Trump’s 2017 tax bill and further include long overdue spending to rebuild the nation’s infrastructure. Both parties have used budget reconciliation in the past to enact important bills – Obama’s Affordable Care Act in 2010 and Trump’s American Job Creations Act in 2017, for example – by taking advantage of the fact that reconciliation enables the Senate to substitute a simple majority for the 60-vote requirement that blocks much legislation.
Beyond reconciliation, another tool that Biden will have at his disposal is the ability to sign executive orders. These executive orders allow the Executive Branch to set policy without consulting Congress. Biden is expected to issue numerous executive orders in the early days of his presidency to reverse regulations in areas like immigration and the environment.
Maintenance of a GOP majority would have at the very least made life challenging for President-elect Biden by giving Majority Leader Mitch McConnell the power to block the new president’s proposals and nominees. Now, the two Democratic victories make it far more likely that the incoming administration can achieve many of its major legislative goals. The party in Senate control decides what comes to the floor for a vote. A Democratic majority means that Senator Chuck Schumer (D., N.Y.), the expected leader, will be able to control what legislation is given priority and what proposals are blocked. It also allows for more coordination with the Democratic-led House and the new Democratic White House.
A Democratic majority leader will likely ensure Senate votes on just about all of Biden’s nominees and most of his major legislative proposals. In theory, this opens the door for the kind of bipartisan support that Biden said he hopes to attract – but Senate Majority Leader Mitch McConnell had been able to prevent – by blocking Senate consideration of Democratic proposals.
Given Biden’s own centrist leanings and the fact that the new Senate Democratic majority – like the one in the House – is extremely narrow, even the Democratic capture of both Georgia seats may not result in radical changes in national policy.
What We Can Expect
At this early stage it is nearly impossible to predict what policy initiatives have a realistic chance of being approved over the next two years, casting uncertainty around issues from tax legislation to energy policy to health care. But what is certain is a narrowly divided Congress in 2021. Democrats retained their majority in the House of Representatives but lost 13 seats. That, combined with the narrow Senate margin, is likely to push policymaking toward the center, with the most ambitious campaign proposals of the incoming Biden administration much more difficult to achieve.
All of this uncertainty makes predicting what policy issues have a realistic chance of succeeding over the next two years very difficult. The Biden campaign promised major policy shifts on issues like climate change, health care and racial justice—with increased taxes expected to pay for these initiatives.
During the campaign, Biden also discussed a host of major tax code changes, including:
- Increasing the corporate tax rate from the current 21% to 28%
- Restoring the top individual tax rate to 39.6% from the current 37%
- Lowering the top tax individual tax bracket to $400,000
- Taxing capital gains and dividends as ordinary income for filers earning over $1 million
- Reducing the estate tax threshold from $23.16 million per couple back to “historical amounts” which could be as low as $10 million or lower
- Adjusting or eliminating the step-up in basis so that individuals can no longer pass on appreciated property without paying tax on the capital gain
- Making other changes related to family tax credits.
Even though the Democrats achieved their best-case scenario and forged a 50-50 tie with the slightest of majorities, there is not Democratic unanimity on many of the Biden tax ideas. So, Biden will likely have to adjust his tax proposals in order to win support from moderate Democrats in the Senate.
Despite which party controls the Senate, infrastructure and retirement savings are policy areas that are ripe for bipartisan action in 2021.
Both parties recognize the need for significant spending to shore up the nation’s infrastructure needs such as roads, bridges and tunnels. A spending bill that focuses on infrastructure could create jobs and is likely to win bipartisan support given the employment downturn resulting from the pandemic. Financing the $1 trillion or more price tag for infrastructure spending will be the major sticking point.
Last fall, top leaders of both parties in the House introduced a retirement savings bill that is drawing support from across the political aisles. Among other things, the bill would raise the required minimum distribution age to 75 and allow for an additional “catch-up” contributions to retirement accounts at the age of 60. While the details may change, the bill appears to have momentum heading into 2021.
As these proposals and the new administration’s policies become more clear, we will continue to track these developments and provide future client alerts. Please contact the Estate Planning and Tax Services attorneys at KJK to discuss how we can help.
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