The 2020 U.S. Presidential Election: Examining the Economic Policy Stances of the Two Candidates - Wells Fargo
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October 06, 2020
Economics Group
Special Commentary Michael Pugliese, Economist
michael.d.pugliese@wellsfargo.com ● (212) 214-5058
Hop Mathews, Economic Analyst
hop.mathews@wellsfargo.com ● (704) 383-5312
The 2020 U.S. Presidential Election: Examining the
Economic Policy Stances of the Two Candidates
Executive Summary
With just four weeks until Election Day in the United States, financial market participants have
begun to more seriously consider what different election outcomes might mean for the future of
economic policy. In previous reports, we have written updates about the election as it pertains to
the race for control of the White House and Congress. In this report, we analyze some of the key
economic policy proposals/positions of Donald Trump and Joe Biden. We then consider how
different election outcomes could impact the likelihood that some of these policies become law.
In short, we think a Trump or Biden win, when paired with a divided Congress, would yield little in
the way of major economic policy changes, perhaps other than a slimmed down COVID-relief bill.
Under this scenario, a President Trump/Biden might have to focus his efforts on making policy
changes in areas where the executive branch has significant unilateral power, such as trade policy,
foreign policy and appointing cabinet members, judges and regulators.
We think a Democratic sweep is the electoral outcome most likely to yield significant changes to
fiscal policy. This scenario would create an opening for the end of the filibuster in the Senate, and
could lead to higher taxes on the wealthy and corporations, as well as major new spending
initiatives on public health, infrastructure and a slew of other areas. We also believe a Democratic
sweep is the scenario in which a significant (>$1.5 trillion) COVID-relief bill would have the highest
probability of becoming law without a serious deterioration in economic and financial market
conditions. Betting markets are increasingly pricing in a Democratic sweep, and thus even though
additional fiscal stimulus may not come before the election, the odds of it coming at some point in
the next couple quarters are on the rise, in our view.
Donald Trump: Look to the Past for Clues for the Future
What might a second term look like for President Trump? Unlike Joe Biden, it appears fairly likely It appears fairly
that Donald Trump would face a divided Congress should he be re-elected. Democrats already hold likely that
a 232-197 seat advantage in the House of Representatives, with five vacancies and one Libertarian Trump would
accounting for the remaining six seats. Generic ballot polling currently gives Democrats about a face a divided
+6.6 point lead at the national level, significantly better than 2016, when Democrats picked up a Congress should
net six seats (Figure 1). PredictIt betting markets give Democrats an 88% chance of maintaining he be re-elected.
control of the House of Representatives.
Regardless of whether Democrats keep the House or not, when it comes to President Trump being
re-elected, we have some historical precedent on which to go. Unlike 2016, the 2020 presidential
election has an incumbent running. In Trump’s first four years in office, he faced two years of
unified government (2017-2018) and two years of divided government (2019-2020), providing a
useful template for a potential second term. During the period of unified control, Republicans
passed a couple major pieces of legislation, with the 2017 tax cuts probably the most significant.
Republicans also helped pass significant increases in federal defense spending (Figure 2) as well as
the Economic Growth, Regulatory Relief, and Consumer Protection Act, which made a series of
changes to financial services regulation.
This report is available on wellsfargo.com/economics and on Bloomberg WFRE.Examining the Economic Policy Stances of the Two Candidates WELLS FARGO SECURITIES
October 06, 2020 ECONOMICS GROUP
Under unified control, however, some Republican objectives did not come to fruition. A full repeal
and replace of the Affordable Care Act was eventually abandoned, and President Trump’s repeated
calls for a major increase in infrastructure spending mostly fell on deaf ears. And after Democrats
took control of the House of Representatives in 2019, essentially no major economic policy
legislation was passed until COVID-19 eventually brought about the CARES Act in March 2020.
Figure 1 Figure 2
U.S. Presidential Elections: The Generic Ballot Federal Defense Outlay Growth
Real Clear Politics Average on Election Day, 2020 Data as of Oct. 6 Year-over-Year Percent Change, 12-Month Moving Average
14% 14% 20% 20%
Bars = Spread between R's and D's in generic ballot
12% 12% 15% 15%
Actual House
10% 10% 10% 10%
Result: D +10.7
8% 8% 5% 5%
6% 6% 0% 0%
Result: ???
Dems +9
4% 4% -5% -5%
Dems +6.6
Actual House
2% Actual House 2% -10% -10%
Result: R +1.1
Result: D +1.2
Dems +0.6 Defense Outlay Growth: Aug @ 2.3%
GOP +0.2
0% 0% -15% -15%
2008 2012 2016 2020 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Source: Real Clear Politics, U.S. Department of the Treasury Wells Fargo Securities
We suspect the We suspect the first two years of a second term Trump presidency under divided government would
first two years of look a lot like the past year-and-a-half in the sense that very little major economic legislation was
a second term passed until the pandemic began. Pre-COVID but post the 2018 midterms, most of the economic
Trump policy changes from Congress and the White House came in areas where the president has sizable
presidency under unilateral power, such as trade policy and regulatory decisions. We suspect these two areas would
divided once again remain in focus, with the policies pursued similar to the ones sought over the past couple
government years (e.g. deregulation in the energy sector or the continued use of tariffs as a tool in trade talks
would look a lot with China).
like the past year
and a half. What about the prospects for another COVID-relief bill? Negotiations between Democrats and
Republicans have been on and off for months, and unless a deal comes together imminently, it
appears any further relief will need to wait until after the election. With President Trump in the
White House and Republicans in control of the Senate, House Democrats could face the prospect
of either no COVID-relief bill or negotiating down to a smaller bill. We believe the latter scenario
would be more likely given our expectation that Democrats would want to achieve at least a watered
down version of some of their key goals from the recent negotiations, such as more money for state
and local governments. Under that scenario, a COVID-relief bill a bit bigger than the $650 billion
Two tax policy
bill advocated by Senate Republicans could become law in the first few months of next year.1
areas that could
receive some Past that, we are skeptical much other major legislation would become law. Divided government
focus in makes sweeping legislation inherently hard, and it is not immediately obvious to us what sweeping
President legislation President Trump and Republican leaders would support. The Republican Party elected
Trump’s second not to adopt a new party platform, instead just reaffirming its 2016 platform. Furthermore,
term would be President Trump’s website is fairly light on concrete policy proposals. Two tax policy areas that
the partial could receive some focus in President Trump’s second term would be the partial expiration of the
expiration of the 2017 tax cuts and forgiveness of deferred payroll taxes. In order to meet budget reconciliation
2017 tax cuts and requirements related to the budget deficit, Republicans set some portions of the Tax Cuts and Jobs
forgiveness of Act to expire at the end of calendar year 2025 (or Q1 FY 2026, Figure 3). Most of these expiring
deferred payroll measures are related to the individual side of the tax code, such as the cuts to marginal income tax
taxes. rates, the doubling of the standard deduction and the doubling of the Child Tax Credit. Although
1As a reminder, our baseline macroeconomic forecast for real GDP growth, nonfarm payroll growth, etc.
assumes no additional fiscal stimulus. Once the dust settles after the election, we will make changes to our
macroeconomic forecast accordingly.
2Examining the Economic Policy Stances of the Two Candidates WELLS FARGO SECURITIES
October 06, 2020 ECONOMICS GROUP
President Trump will have left office before December 31, 2025, we would think that making at
least some of these cuts permanent would be a goal of his administration.
Figure 3
Projected Federal Revenues
Percent of GDP, CBO Baseline Scenario Projections
19.0% 19.0%
Revenues: 2030 @ 17.8%
18.5% Average Revenues 1970-2019 18.5%
18.0% 18.0%
17.5% 17.5%
17.0% 17.0%
16.5% 16.5%
16.0% 16.0%
15.5% 15.5%
15.0% 15.0%
2019 2021 2023 2025 2027 2029
Source: Congressional Budget Office and Wells Fargo Securities
In addition, President Trump’s signed an executive order in August that postpones the withholding
of Social Security taxes until January 2021. Since it is technically a tax deferral, and not a tax cut,
those taxes will still be owed early next year for participating firms and workers. It would take an
act of Congress to retroactively forgive these deferred tax liabilities, and that could be another goal
of President Trump in the early part of his second term.
Joe Biden: What Are the Policy Priorities?
What about the outlook for economic policy changes under a President Biden? Here, there are
Under a
two possible electoral outcomes that could yield significantly different legislative backdrops. Joe
President Biden,
Biden could win the White House, but Democrats fail to capture the net three seats they need to
there are two
take the Senate. Alternatively, they could win more than three seats and operate under a unified
possible electoral
government through at least the 2022 midterms. If the first scenario comes to fruition, we suspect
outcomes that
very little major economic policy legislation would pass in Congress. Even another COVID
could yield
economic relief bill could face long odds, to say nothing of an expansion of the Affordable Care Act,
significantly
tax increases or major new infrastructure investments. If Republicans in Congress are hesitant to
different
embrace a COVID-relief bill under President Trump, the odds such a bill becomes law seem even
legislative
longer under a President Biden, unless economic and financial market conditions significantly
backdrops.
deteriorate. Under this scenario, a President Biden might need to focus his efforts on making policy
changes in areas where the executive branch has significant unilateral power, such as trade policy,
foreign policy and appointing cabinet members, judges and regulators.
A Democratic sweep, however, could bring about a scenario in which some of Joe Biden’s top
legislative proposals face a more realistic road to becoming law. The table on the next page
highlights some of Joe Biden’s key economic policy proposals. This is far from an exhaustive list of
Biden’s numerous plans, and we encourage readers who have an interest in a specific area to check
out the policy proposal section of the candidate’s website. On the individual tax code, most of
Biden’s policies center on expanding existing tax credits and raising taxes on high earners.
Specifically, Biden supports restoring the top marginal tax rate to 39.6%, taxing capital gains as
ordinary income for those with more than $1 million in income and subjecting wages above $400K
to the 12.4% Social Security payroll tax. Biden has also proposed expanding the Earned Income Tax
Credit, the Child Tax Credit and re-establishing the First-time Homebuyers’ Tax Credit. For the
corporate side of the tax code, Biden supports raising the corporate tax rate to 28% from 21%,
creating a minimum tax on corporations with book profits of $100 million or higher and increasing
the tax rate on Global Intangible Low Tax Income (GILTI) earned by foreign subsidiaries of U.S.
firms to 21% from 10.5%.
3Examining the Economic Policy Stances of the Two Candidates WELLS FARGO SECURITIES
October 06, 2020 ECONOMICS GROUP
On the spending side of the ledger, Biden has numerous policy ideas that would lead to higher
spending. Some of the biggest include two years of tuition-free community college, tuition-free
public college for families with incomes 20 yrs
•tax
Re-establish First Time Homebuyer tax liabilities of financial institutions with • Increase the size of ACA subsidies
credit over $50B in assets • Implement a public health insurance option
• Expansion of Child Tax Credit to $3,000 • Forgive a minimum of $10,000 of federal student
per child 6-17 yrs. & $3,600 per child >6 loan debt per person & increase the generosity of
yrs income-based student loan payments
• Make temporary individual provisions of • Make temporary coporate provisions of • Increase infrastructure spending
TCJA permanent (e.g. modified tax rates, TCJA permanent (e.g. full expensing)
expanded standard deduction) • Increase defense spending?
Trump • Forgiveness of deferred payroll tax
• Payroll tax cut?
• Cut capital gains tax rates?
Source: Candidates’ websites and Wells Fargo Securities
The priority a When thinking through this slew of policy proposals, we believe there are two more important
candidate places points to keep in mind. First, the priority a candidate places on a policy position can matter as
on a policy much, if not more, than the policy position itself. Candidates often try to offer policy proposals on
position can every topic imaginable, but in recent years presidents have often been able to pass only a few major
matter as much, pieces of legislation over their time in office. President Obama was able to push through the
if not more, than Affordable Care Act and Dodd-Frank, for example, but fell short on carbon pollution
the policy cap-and-trade legislation. President Trump managed to overhaul the U.S. tax code, but he has not
position itself. been able to successfully push through a large scale infrastructure plan. And neither President
Obama nor President Trump enacted comprehensive immigration reform. Thus, which policy issue
is first in line for attention is critical and something we will be monitoring closely post-election.
Second, what is proposed and what is enacted are often two very different things. Donald Trump’s
What a candidate
initial 2015 campaign proposal called for a tax cut that analysts at the Tax Policy Center projected
proposes and
would reduce federal revenues by $9.5 trillion over ten years. 3 A revised tax plan released by the
what is enacted
Trump campaign closer to the election was projected by the same analysts to cut revenues by a
are often two
smaller $6.2 trillion over ten years.4 In the end, the Joint Committee on Taxation projected that the
very different
things.
2 Penn Wharton Budget Model. (September 2020). “PWBM Analysis of the Biden Platform.”
3 Nunns, J., Burman, L., Rohaly, J. & Rosenberg, J. (December 2015). “An Analysis of Donald Trump’s Tax
Plan.” Urban-Brookings Tax Policy Center.
4 Nunns, J., Burman, L., Rohaly, J. & Rosenberg, J. (October 2016). “An Analysis of Donald Trump’s
Revised Tax Plan.” Urban-Brookings Tax Policy Center.
4Examining the Economic Policy Stances of the Two Candidates WELLS FARGO SECURITIES
October 06, 2020 ECONOMICS GROUP
2017 tax cuts legislation would reduce federal revenues by about $1.5 trillion over ten years. 5 We
encourage our readers to bear in mind that just because something is proposed by a candidate does
not mean the end result will be identical, or even close, to the size and scope of the original plan.
How then, even under a Democratically-controlled Congress, might Joe Biden prioritize this slew
of different policy ideas? Although this is hard to know at this point in time, we have begun to think Passing a several
that a COVID economic relief bill could be the first major legislative priority under a President trillion dollar
Biden. Under a Democratic sweep scenario, President Biden could spearhead an effort that COVID-relief
prioritizes key Democratic policy goals from the recent negotiations, such as robust fiscal support package would
to state and local governments and a sizable boost to expanded federal unemployment benefits. be no easy feat
President Biden might also use this opportunity to attach new policies to a COVID-relief bill that even if
have not been a part of previous negotiations, such as infrastructure spending, green energy Democrats
initiatives or student loan debt forgiveness. control Congress
However, passing a major COVID-relief package that is several trillion dollars would be no easy feat
even if Democrats control the House and Senate. First, there is the issue of finding the votes within
their own party. As Republicans illustrated in 2017 when they had unified control of Congress and
the White House but failed to fully repeal the Affordable Care Act, this is no guarantee, particularly
if the COVID-relief package were to be even bigger than framed in the current negotiations. Second,
the threat of a filibuster looms large. The CARES Act enacted in April passed unanimously, as
neither side chose to block that legislation at a critical juncture early in the pandemic. But, if
Republicans in the Senate are opposed to this hypothetical President Biden-backed bill, they could
choose to filibuster it, pushing the threshold for passage up to 60 votes, likely too high of a hurdle
to clear if the vote is along party lines.
This would leave three options for Democrats. One, they could attempt to negotiate with
Republicans in the Senate and accept a much smaller/different package than they would prefer to
pass on their own. Two, they could go the route of eliminating the filibuster in the Senate. This
would require just a simple majority to do and is an idea Joe Biden appears to have warmed to as
time has gone by. With the filibuster gone, Democrats could focus on writing a bill that would just
need to pass muster in their own party. But, Democrats could risk political blowback for this route,
and they would need to consider what it might mean for them the next time they are in the minority We think the
as the move would fundamentally alter the way the Senate functions. The third option would be to Democratic
resort to budget reconciliation, a privileged legislative tool that can avoid a Senate filibuster. The sweep is the
downside to budget reconciliation is that it comes with strict rules about what types of policies can scenario in which
and cannot be included, as well as a requirement that it cannot expand the budget deficit outside a significant
of the 10-year budget window.6 COVID-relief bill
could become
While it is too difficult to pass much judgment on this route without seeing an actual proposal, we law without a
suspect this third avenue could become fraught with problems as opponents of such a bill use these serious
stringent rules to strip out some policies the bill contains. It is unclear to us, for example, whether deterioration in
fiscal support to state and local governments would fly in a reconciliation bill. This route could be economic and
more politically palatable than scrapping the filibuster, but could result in a watered down version financial market
of fiscal stimulus more in line with the outcome from bipartisan negotiations. conditions.
Regardless, at least on a relative basis, we think the Democratic sweep is the scenario in which a
significant (>$1.5 trillion) COVID-relief bill could become law without a serious deterioration in
economic and financial market conditions. Financial markets appear to be in agreement, as the
recent rise in equity prices and bear steepening of the Treasury yield curve has coincided with
continued stimulus talks and improving odds of a Democratic sweep. Thus, even though additional
fiscal stimulus may not come before the election, the odds of it coming at some point in the next
couple quarters are on the rise, in our view.
5 Joint Committee on Taxation. (December 2017). “Estimated Budget Effects of the Conference Agreement
for H.R. 1, the “Tax Cuts and Jobs Act”.”
6 For deeper dive into budget reconciliation, see our federal budget primer report.
5Wells Fargo Securities Economics Group
Jay H. Bryson, Ph.D. Chief Economist (704) 410-3274 jay.bryson@wellsfargo.com
Mark Vitner Senior Economist (704) 410-3277 mark.vitner@wellsfargo.com
Sam Bullard Senior Economist (704) 410-3280 sam.bullard@wellsfargo.com
Nick Bennenbroek International Economist (212) 214-5636 nicholas.bennenbroek@wellsfargo.com
Tim Quinlan Senior Economist (704) 410-3283 tim.quinlan@wellsfargo.com
Azhar Iqbal Econometrician (212) 214-2029 azhar.iqbal@wellsfargo.com
Sarah House Senior Economist (704) 410-3282 sarah.house@wellsfargo.com
Charlie Dougherty Economist (704) 410-6542 charles.dougherty@wellsfargo.com
Michael Pugliese Economist (212) 214-5058 michael.d.pugliese@wellsfargo.com
Brendan McKenna International Economist (212) 214-5637 brendan.mckenna@wellsfargo.com
Shannon Seery Economist (704) 410-1681 shannon.seery@wellsfargo.com
Jen Licis Economic Analyst (704) 410-1309 jennifer.licis@wellsfargo.com
Hop Mathews Economic Analyst (704) 383-5312 hop.mathews@wellsfargo.com
Nicole Cervi Economic Analyst (704) 410-3059 nicole.cervi@wellsfargo.com
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Coren Burton Administrative Assistant (704) 410-6010 coren.burton@wellsfargo.com
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