A majority of the Senate (including two Democrats) has agreed to forego efforts to eliminate the filibuster during the Congressional term ending December 2022.
The filibuster is a rule that requires sixty votes -- and thus some minority support -- to pass most legislation in the Senate. The filibuster is a Senate procedural rule. It is not enshrined in the Constitution or any law. Although the filibuster requires sixty votes to move legislation, only a simple majority of the Senate (51 votes) is needed to eliminate the filibuster requirement. (This difference defies rational explanation.)
The recent decision to retain the filibuster permits the Republicans to block most of President Biden’s sweeping legislative initiatives, such as adding a public option to the ACA, tightening Dodd-Frank, providing green energy incentives, reforming Social Security, and forgiving student loans. Because many of these initiatives are anti-business, the markets may breathe a sigh of relief that the filibuster remains intact.
Senate rules, however, provide an important exception to the filibuster, called “reconciliation”. Reconciliation is complicated, but the bottom line is that the procedure allows the Senate to pass tax legislation and most spending legislation with a simple majority vote.
For the markets, the reconciliation procedure is a mixed blessing. In the short term, reconciliation allows the Democrats to pass COVID stimulus legislation unilaterally if they cannot agree with the Republicans on a bipartisan package. But, later this year, reconciliation gives the Democrats the wherewithal to pass Biden’s tax proposals over Republican objection. That ability notwithstanding, we expect Senate Democrats to make substantial changes to Biden’s tax package before its potential enactment.
In our 2021 presentation, we review Biden’s tax proposals and predict which parts are likely to pass, and in what form. We also consider the market consequences of other initiatives that may gain bipartisan support, including additional stimulus, infrastructure repair, restrictions on China, and efforts to reign in the technology and pharmaceutical industries. Finally, we discuss the market effects of the executive orders that Biden signed without needing Congressional approval.
A new administration -- particularly coupled with a shift in Congressional power -- brings many changes. In this time of uncertainty and opportunity, we continue speaking to advisors and clients to help them understand how this year’s Washington deliberations are likely to affect their financial plans.
Andy Friedman
Jeff Bush
Andrew H. Friedman is the founder and principal of The Washington Update LLC and a former senior partner in a Washington, D.C. law firm. He and his colleague Jeff Bush speak regularly on legislative and regulatory developments and trends affecting investment, insurance, and retirement products. They may be reached at TheWashingtonUpdate.com.
The authors of this paper are not providing legal or tax advice as to the matters discussed herein. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. It is not intended as legal or tax advice and individuals may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities). Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.
Copyright Andrew H. Friedman 2021. Reprinted by permission. All rights reserved.
© The Washington Update
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