Summary

James provided a closer look at US fiscal policy, the November elections, and implications thereof. COVID-19: The US poured tremendous resources into supporting the economy and moved surprisingly aggressively: Nearly $10trn worth of policy support, about half of which has been deployed. The Federal Reserve authorised over $5.5trn in emergency lending while Congress and the Trump administration authorised $3.6trn (inclusive of $1.4trn in near-term tax relief) and $380bn, respectively. All of which has brought drastic changes to federal deficit projections - the coming reality check. Updated forecasts from the Committee for a Responsible Federal Budget predict the deficit to reach $3.8trn in 2020, which is before factoring another COVID response. James expects this next COVID package to be between $0.8trn and $1.5trn. Elections: Capital Alpha’s base case is a Democratic sweep in November, with former Vice President Joe Biden defeating President Trump and the Dems taking back control of the Senate while maintaining the House of Representatives. Noting that the available evidence today - polling, demographics, economics - points to a nationalised electorate and Democratic control, James views a sweep as the contingency for which investors should plan. He asserted that 2020 will be one of the more consequential US elections because of its potential to effect sweeping policy changes. James expects Democrats to eliminate the Senate’s procedural filibuster - which essentially requires 60 vs. 51 votes to move significant legislation forward. The resulting ability to execute, as no prior Congress has been able to execute in modern history, paired with a very well-developed policy agenda from the Obama years, could be quite significant. Biden Tax Plan: James made clear that Biden’s tax plan should not be overlooked as it represents considerable change. Biden would raise about $4trn in revenue, including $1trn in individual income taxes, $1trn from social security, and $2.1trn in corporate taxes (primarily raising the tax rate from 21% to 28%, doubling the GILTI, and imposing a 15% minimum tax on worldwide book income). Biden combines these revenue increases with popular expenditures. Thus, considering the difficult fiscal environment, a Biden administration may need to look at revenue above and beyond what is already planned.

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