After the tragic events at the Capitol building in Washington, D.C. on Jan 6., as lawmakers and leaders try to make sense of what occurred and what must happen next, the prospects for the policy agenda of the next presidential administration will--rightfully--take a back seat for some time. But members of Congress have vowed to keep the American government functioning as best it can, as demonstrated by their work well into the wee hours, in the aftermath of Wednesday's violence, to certify the Electoral College victory of President-elect Joe Biden.

The president-elect campaigned on his ability to reach across the partisan aisle to effect real change. He has promised to be, in his words, a president "for all Americans," not just those who voted for him. Somewhat lost in Wednesday's tumult is the fact that he will have greater leeway to put actions to his words, as Democrats' hoped-for "blue wave"--winning the White House and taking control of both houses of Congress--has come to fruition with victories in a pair of runoff elections for Georgia's two Senate seats. While the result gives President-elect Biden a better chance to push through his promised legislative agenda, it also bolsters his ability to seat cabinet members, federal judges, and Federal Reserve members of his choice without significant opposition.

The new administration's first order of business will be to gain control of the coronavirus pandemic, which continues to rage in many parts of the U.S., and to jump-start an economy ravaged by the health crisis and related lockdowns. Along with the acceleration of vaccine rollouts and other pandemic-fighting measures, additional fiscal stimulus may be needed to keep the world's biggest economy moving in the right direction (see "Next Steps For President-Elect Biden: Containing Coronavirus And Stabilizing The U.S. Economy," published Nov. 19, 2020). The congressional makeup that's in line with the new administration will make it a little bit easier to get more stimulus approved.

Biden has already promised to build on the $900 billion stimulus bill that President Donald Trump signed into law just before the new year, which included $600 direct payments to many Americans. The president-elect has pledged to send checks of $2,000 to those same consumers--a figure that, ironically, his predecessor pushed for after Congressional Democrats and Republicans had already agreed to the lower amount as part of a broader bill.

The direct effects of temporary stimulus are generally limited to the duration of the measures themselves, with the benefit of fiscal multipliers--how much economic activity is generated for one dollar in fiscal spending--decaying over time. Under normal conditions, for every dollar spent, the boost to economic activity is less than a dollar--although to varying degrees, and with some policies closer to break-even, depending on where the economy is in the cycle. Fiscal multipliers are generally higher in a weak economy with low interest rates.

Just before the December package passed, we projected that $1 trillion in stimulus, rolling out at the start of this year, would bring U.S. GDP back to its end-2019 level by the third quarter (see "Bang For The Buck: How U.S. Fiscal Stimulus Could Benefit The Recovery," published Dec. 15, 2020). Unsurprisingly, in our December upside forecast, we figured that a bigger, largely demand-driven stimulus package of $1.5 trillion would provide even more juice to the recovery, with the U.S. reaching pre-pandemic GDP by the second quarter. Whether the already approved amount proves to be enough to get us to the other side--or the Biden Administration will need to add to it--remains to be seen (see chart).

Either way, these policy fixes are by design temporary; they alone won't bring the economy to a higher sustainable growth path. They will help fill the hole in demand but won't change the longer-run rate of economic expansion, which is a function of growth in productivity and the labor force. Other fiscal policies, if prudent, may be a better solution. Investments in physical infrastructure and human capital (public health and education), for example, are long-term investments that pay for themselves--and are often additive to an economy. Not to mention that they're sorely needed after decades of underinvestment.

The Long Road To Legislation

Which brings us to the legislative agenda promoted by President-elect Biden and Vice President-elect Kamala Harris (with our usual disclaimer recognizing that promises often go unfulfilled, and new presidents typically take a measured approach to spending their political capital). Support has arrived in the form of victories for the Rev. Raphael Warnock and Jon Ossoff in the runoff elections for U.S. Senate seats in Georgia, which give Democrats effective control of the upper chamber--a 50-50 partisan split, with the vice president holding any tie-breaking vote (see "As Biden Preps For Presidency, Senate Sway May Mean More For Credit," published Nov. 19, 2020).

Given this narrowest of margins, Biden could face hurdles in realizing his agenda, as he would need support from all of his party's senators (a group that includes two independents who caucus with Democrats and some Democrats who represent so-called red states won by President Trump in November) or to bring some Republicans on board.

This likely leaves many plans out of reach or aspirational at best, but if there's any legislative low-hanging fruit, infrastructure--which enjoys perhaps the most bipartisan support--is it. Infrastructure's prospects for job creation and goosing the economy through the multiplier effect (greater when the economy is weak) appeal to both parties' bases. During his campaign, Biden laid out a plan to pump $2 trillion into physical infrastructure, including roads, bridges, water systems, electricity grids, and universal broadband, while also investing in care services and facilities.

Increased infrastructure investment, if done wisely, can boost an economy in many ways, including by adding jobs--mostly in the middle class, and not only during a project's construction--which boosts income and raises property values. And while most think of roads and bridges when infrastructure comes to mind, public health is also a form of infrastructure and, as COVID-19 has made clear, also in need of improvements. In our analysis conducted after the pandemic took hold last year, we found that a $2.1 trillion boost to public infrastructure spending over a 10-year period could add as much as $5.7 trillion to U.S. GDP in a decade. That's 10 times what was lost during the recession. It would also create 2.3 million jobs by 2024 as the work is being completed, and the additional 0.3% boost to productivity generated per year would add a net 713,000 jobs by 2029 (see below).

Given that interest rates are at historic lows, materials remain affordable, and high unemployment persists, now sure seems like a good time to act (see "Infrastructure: What Once Was Lost Can Now Be Found--The Productivity Boost," published May 6, 2020).

Battles For Another Day

Once the pandemic is contained and the U.S. economy moves into a higher gear, the Biden Administration may look to tackle its more ambitious agenda. At that point, taxes may become the legislative issue with the most potential ramifications. If the president-elect can push through his proposal to raise the statutory tax rate for U.S. corporations, it would likely raise the effective rate most companies pay, absent tax-planning offsets. However, the midterm elections in 2022 will likely make some Democrats up for reelection reluctant to sign on to a major tax change.

We expect companies and sectors with large overseas earnings would likely see even bigger increases in their effective tax rates as steeper taxation of foreign earnings would add to the effects of the domestic increase. But while the tax change would have mixed consequences for S&P Global Ratings' adjusted ratios, we believe there would be little effect on corporate credit quality (see "U.S. Corporate Tax Policy Post-Election Won’t Likely Affect Ratings, Regardless Of Election Results," published Oct. 19, 2020).

Without Congress' help, the new president could rely on executive orders and other nonlegislative moves to effect change. For example, Biden has pledged to tighten environmental rules generally, which could add to costs for companies (while also potentially creating jobs in "green" industries). He is said to be preparing a number of executive orders that would reverse Trump Administration policies, including the withdrawal from the 2016 Paris Agreement on climate change. He is also reportedly looking to cancel a 2017 executive order that lifted restrictions on offshore oil drilling, and could halt the fast-tracking of reviews of pipelines and other fossil fuel projects.

All told, his clean energy plans could have a deep, direct effect on the U.S. energy sector--oil and gas production, in particular. A ban on new oil and gas permitting on federal lands could weigh on many oilfield services companies, especially offshore drillers, given potentially significant effects on capital spending (see "How Diverging Energy Policies In The U.S. Presidential Election May Affect Credit Quality," published Oct. 23, 2020).

Another area in which the new administration could change the country's course is trade. However, it seems unlikely that Biden would move quickly to reverse many of the Trump Administration's policies or to take a much friendlier stance toward the U.S.'s economic rival China. This is especially true given that Americans increasingly view the country as a competitive threat, and without sweeping changes coming from Beijing, the deep-seated tensions between the countries look set to persist.

But in contrast to Trump's "America First" stance, Biden plans to form a coalition with U.S. trade partners when addressing China trade policy. The president-elect may also unwind tariffs President Trump levied on certain goods from Europe. Closer to home, he may consider reopening negotiations with Canada to address the current tariff on softwood lumber.

Health care, too, was a top campaign issue, as it has been in every presidential race in recent memory. The loss of insurance for many Americans during the pandemic-induced recession has only thrown the issues of coverage and cost into greater relief. The incoming president could look to bolster the Affordable Care Act (ACA) via measures including a federal public option, new incentives for states to expand Medicaid, and expanded subsidies for ACA individual products. Biden also supports drug-pricing reforms, a position popular on both sides of the aisle.

Yet many of these changes may be difficult to achieve because they may require more than a simple majority in the Senate. Assuming the Supreme Court validates the ACA in the California v. Texas case this year, dramatic changes to Obamacare don't seem to be in store anytime soon. That said, with control of the Senate, Biden will have more leeway to push through his appointments and effect his agenda.

S&P Global Ratings believes there remains a high degree of uncertainty about the evolution of the coronavirus pandemic. While the early approval of a number of vaccines is a positive development, countries' approval of vaccines is merely the first step toward a return to social and economic normality; equally critical is the widespread availability of effective immunization, which could come by mid-2021. We use this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.