Here’s What The Georgia Runoff Elections Will Mean For Economic Recovery

Topline

The outcome of two runoff elections in Georgia this week will determine which party controls the U.S. Senate and carry major implications for stimulus, corporate taxes and the American economy’s outlook in the wake of the coronavirus crisis. 

Key Facts

On Tuesday, Georgia will head to the polls again as Democrats Jon Ossoff and Raphael Warnock challenge incumbent Republican Sens. David Perdue and Kelly Loeffler.

If the Democrats win both seats, control of the Senate will shift and the economic outlook for 2021 and beyond will change significantly.

A Democratic president, Senate and House of Representatives will favor more stimulus spending, more regulation and higher taxes for businesses—all of which will be easier to enact without a Republican majority in either chamber of Congress. 

That could spell a rough time for the stock market: Oppenheimer chief investment strategist John Stoltzfus told clients in a Monday note that a Democratic sweep will cause U.S. stocks to fall between 6% and 10%, thanks to concerns about the bump in corporate tax rates and boost in government stimulus spending and, as a result, debt levels. 

JPMorgan analysts suggested last week that the initial reaction from the market could also be positive in that scenario, despite the likelihood of tax hikes and more legislative red tape, because the stimulus spending many experts agree is necessary for the still-stalled economy would be Congress’ first priority, Bloomberg reported. 

If the GOP retains one of the Senate seats—an outcome Oppenheimer’s Stoltzfus says the market has already priced in—those major legislative initiatives become less likely.

Crucial Quote

“If the GOP wins just one seat, they will likely stonewall some of Biden’s more ambitious proposals,” Glenmede’s Investment Strategy Team wrote in a note to clients on Monday, “but a Democratic sweep of both elections might give the incoming administration free reign [sic] on their policy agenda.” 

What We Don’t Know

The outcomes of the two Georgia races are far from assured. Senate Majority Leader Mitch McConnell’s refusal to allow a vote on a measure to increase the size of the next round of direct payments to $2,000 from $600 had a hand in energizing new Democratic voters in the state, Democratic leader Stacey Abrams said over the weekend. President Trump, Democrats and the two incumbent Georgia senators support the larger payments. And over the weekend, a leaked audio recording of a phone call between President Trump and Georgia Secretary of State Brad Raffensperger revealed how Trump pressured Raffensperger to “find” the votes necessary to overturn President-elect Joe Biden’s win in the crucial battleground state, a move that could alienate GOP voters.

Further Reading

‘Absolutely Appalling’: A Few Republicans Condemn Trump’s Georgia Call, But Most Remain Silent (Forbes)

McConnell Blocks Trump’s, Democrats’ Bid To Increase Stimulus Checks To $2,000 (Forbes)

Georgia Senate Runoffs: GOP Has ‘Galvanized’ Turnout By Blocking $2,000 Checks, Stacey Abrams Says (Forbes)

Wall Street Hopes Democrats Lose Georgia Runoff Elections, But Here’s What Investors Should Expect If They Pull Off A Win (Forbes)

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