Tracking the top policy issues at play and their business impact
While the US election outcome faces legal actions in several states, and control of the Senate is still undecided, businesses are nonetheless looking ahead to January when the 117th Congress will convene to certify the election results and likely put Democrat Joe Biden on course to take the oath on Inauguration Day.
A Biden administration will face a complicated working environment on the Hill. Republicans hold the edge in the Senate but control could shift in January with two runoffs in Georgia. In the House, Democrats are projected to retain a narrower majority.
If Republicans hold the Senate, Congress will likely act to moderate the pace of any policy ambitions. At the same time, there will be interest in finding common ground. Containing the pandemic, spurring job growth and bolstering confidence are priorities on both sides of the aisle. Additional economic stimulus spending is top of mind, as well as how quickly it can work into the US economy.
In the near term, Congress must eventually act on legislation to fund the federal government beyond December 11, when a temporary spending measure expires. Congress also could act on a limited number of other issues, including additional pandemic relief legislation and proposals to extend more than 30 business and individual tax provisions that are set to expire at the end of 2020.
The new administration will try to secure as much of its 2021 agenda as possible, with much riding on progress with safe and effective vaccines. Among the items we’ll be watching at the start of a new legislative year:
Shift in tone: Biden is intimately familiar with the policymaking processes behind major legislation. His potential outreach to both Republicans for cabinet positions and to the left wing of his own party could signal a more consensus-oriented approach to solving problems such as economic inequality and immigration.
While facing significant headwinds: The next Congress and president will face one of the most challenging fiscal environments in US history as they seek to achieve a vigorous economic recovery while confronted with record debt. The federal budget deficit rose to $3.1 trillion in the fiscal year ending in September. Still, it will likely be hard for Biden to implement his tax proposals with conservative Democrats and Republicans in the Senate.
Here are our perspectives on the prospects and impetus for legislative and regulatory change, even in this politically divided age, and how these dynamics could impact your business.
Democratic control of both the House and Senate has long been seen as critical to action on Biden’s proposals that rely on funding from higher business and individual taxes. If Republicans retain control of the Senate, it would largely eliminate the prospect of any significant tax increases until at least after the 2022 midterm elections. Business taxpayers will focus on how Biden may address certain provisions from 2017 tax reform that either expire or change over the next few years that include capitalization of research expenditures, interest deductions and full expensing rules.
Continue scenario planning and modeling. Even if Republicans eventually secure control of the Senate, midterm elections in two years could change the policy calculations for tax changes. Biden has proposed a number of business and individual tax increases to promote job growth and address concerns over economic inequality. They include increased spending on infrastructure and tax incentives for clean energy and domestic manufacturing.
Take note of appointments. Companies with global operations will be looking to Biden and his Treasury appointees for leadership in efforts to reach a workable consensus on how to address digital taxation. It is unclear if Biden will be as inclined as Trump has been to use tariffs against France and other nations that have enacted or have proposed digital services taxes (DSTs).
Interest in reversing the outflow of US jobs is bipartisan and rising. While Biden is a globalist and has signaled greater willingness to act multilaterally, the focus on economic recovery means trade policies aren’t likely to change quickly. The US will continue to make use of tariffs, export/import restrictions and US market access negotiations to bring back supply chains, especially from countries where there are trade and political tensions. Executives have sensed the underlying shifts driving US trade priorities, particularly related to rising economic competition with China. In a PwC survey in September, a majority agreed that US-China trade restrictions would increase regardless of the outcome of the election.
In the near term, one often-overlooked issue in supply chains is the role of the World Trade Organization (WTO), which is in the process of selecting a new director-general and still has a non-functioning appellate body. Until the appellate body issue can be resolved, trade disputes will likely have little option for resolution via the WTO process, increasing the likelihood of international disputes finding resolution through tariff and retaliatory measures. In any case, trade issues with China are likely to continue to be approached bilaterally.
Assess incentives to boost domestic production and US competitiveness: Biden’s economic recovery plan includes tax incentives and tax penalties intended to encourage companies to invest domestically in “Main Street” businesses and local American suppliers as opposed to pursuing lower-cost efficiencies in other markets. He will likely focus trade policy on research and development funding in order to rebuild US competitiveness. At the same time, a Biden administration will likely have a more nuanced approach to relations with China. Being seen as soft on China is fraught with political risk, and a Biden administration may expand the exemption process at the Office of the US Trade Representative rather than withdrawing tariffs on China.
Find ways to de-risk and diversify global footprints: The single-location model for production is losing its hold on US operations leaders. Companies may try to balance being customer-centric and trade-policy wise with maintaining economies of scale that they expect from a global hub. For example, a PwC analysis shows that companies that shift production from China could cut operating costs and, at the same time, improve customer experience. But tariffs are not forcing some businesses out of China simply because of the size of the domestic and regional market opportunity there.
Reconfigure cross-border deals strategy: Government oversight of cross-border M&A activity, as well as demands for divestitures or spinoffs that would separate US assets from non-US owners, is likely to continue. Adapt for greater scrutiny regarding intellectual property and national security. This includes cyber threats. Alternative paths could involve smaller deals and transactions in sectors that suggest less security risk.
Biden has promised to create millions of jobs in an economy still recovering from the pandemic-induced shutdowns. After job losses of 22.2 million in March and April, employers added back just over half of those jobs by September, leaving a net job loss of 10.7 million. This job loss amounts to 7% of pre-pandemic employment, a bigger loss than the worst month of the 2008-2009 recession.
Biden will likely push for “Made in America”-oriented policies, such as tax credits for onshoring jobs. Biden has proposed to deny deductions for moving jobs or production overseas and establish “claw-back” provisions to require return of public investments and tax benefits if production moves overseas. Biden’s $700 billion plan includes spending $400 billion on purchases of US-based goods and services over four years and $300 billion on R&D for new technologies and clean energy initiatives.
The White House is also likely to support public calls for increased diversity and inclusion in the workforce with executive orders, regulations and public accolades for businesses that show progress on those goals. Finally, Democrats are likely to prioritize quick passage of the DREAM Act. However, how many other immigration-related fixes, such as for high skilled workers, may get attached to this initial effort remains to be seen.
Be proud of the “good jobs” being created to drive economic recovery: The private sector has always had a role in creating jobs that promote employee well-being and, especially now, that will help drive a sustainable recovery. We’ve identified the dimensions of good jobs as: safe, paid fairly, reasonably secure, motivating, leveraging the human skills of the worker, building transferable skills and providing a level of autonomy. These jobs enhance employee experience while helping drive productivity.
Invest in upskilling with a focus on the future employability of your workforce: The focus on jobs and recovery means that the private sector’s role in upskilling and increasing the future employability of workers, including those who are facing layoffs in this recession, will be more important. Businesses can look to the “buy American” policy momentum as a guide to investments in retraining programs for domestic suppliers, manufacturing and digital business.
Focus on diversity and inclusion as an ESG issue: It’s highly likely there will be frequent initiatives beyond legislation, such as executive orders and regulation, to urge corporate America to redouble its efforts to take direct action to make changes on workforce issues related to diversity and inclusion, wages, benefits, governance and other areas. Show more transparency about workforce practices. These initiatives could include metrics on diversity and inclusion of women and people of color, equal pay, and health and safety of workers.
Biden will seek to return to the Obama administration’s approach to healthcare and build on the Affordable Care Act (ACA) through incremental expansions in government-subsidized coverage. He likely will continue the Centers for Medicare and Medicaid Services’ (CMS) push toward more value-based care and the FDA’s ongoing modernization. But he’s assuming the presidency in very different circumstances from when he was vice president.
The country is grappling with a pandemic that has killed more than 230,000 Americans in nine months, sickened millions more and dealt the economy a stunning blow. Moreover, the ACA’s constitutionality is being challenged in the US Supreme Court, with a decision expected in 2021. Biden has said he will mount a more aggressive federal response to the pandemic than his predecessor. Bolder acts, such as developing a public option for health insurance, resolving surprise billing and allowing for negotiation of drug prices by Medicare will be more challenging without filibuster-proof Democratic control of the Senate.
Speed up your transition to the New Health Economy: The COVID-19 pandemic has accelerated the shift toward a more consumer-oriented, digital and virtual healthcare system, with a greater focus on wellness and prevention. There are new opportunities for companies traditionally outside the healthcare industry. Once the dust from the election settles, companies that have invested in capabilities for growth and are moving forcefully toward the New Health Economy stand to gain disproportionately.
Data-driven scenario planning: There are many unknowns, including uncertainty about the course of the pandemic and what the future holds for the ACA. If the Supreme Court overturns the ACA, millions of Americans could lose health insurance. That could impact certain workforces in the short term and ultimately lead to a push for an ACA replacement. A new law could mean another pivot for companies on healthcare coverage. Companies that have been laser-focused on the health and safety of their workforce during this pandemic should invest in data-driven scenario planning to model out coverage and costs taking into consideration the effects of possible additional surges in COVID-19 and legislative changes, such as surprise billing or drug pricing reform.
Democrat Joe Biden has proposed a healthy dose of economic stimulus and pandemic relief measures, which leaders at consumer-facing companies will welcome to boost consumer spending — just as the earlier round of economic stimulus and pandemic relief did.
Biden may also pursue more stringent public-health measures, such as lockdowns, to combat the pandemic, which would provide additional impetus for consumer markets (CM) companies to double down on contactless, digital solutions. In a recent PwC survey, CM leaders told us that automation, data analytics and a digitally reimagined customer experience will infuse their strategy and operations, no matter who wins the election.
CM leaders also told us they are bracing for higher corporate taxes as a result of COVID-19 spending. However, Biden has also promised tax relief and credits for companies looking to re-shore portions of their supply chain and operations.
Another Biden proposal — to raise the minimum wage to $15 per hour and expand health-care coverage — could further impede the outlook for smaller consumer-facing companies already struggling in the wake of the pandemic. However, Biden has proposed small-business funding via state and local programs.
Biden is expected to act more multilaterally on trade than his predecessor. However, trade policies are unlikely to change in the short term, given the focus on onshoring for economic recovery. Moreover, many consumer-facing companies have already moved portions of their supply chains to other parts of Asia in response to Trump’s tariffs and China policy.
What to expect:
A boost in consumer spending from a new round of economic stimulus and pandemic relief
Robust public-health measures to combat the pandemic — including potential lockdowns — which could temporarily affect in-person shopping as well as travel
During this election cycle, as the oil and gas sector copes with dampened demand for oil coupled with volatile prices, and while utilities deal with reduced demand from their industrial and commercial customers, the industry is clearly in a far more precarious spot than it was when Trump won four years ago. A Biden administration could usher in both risks and opportunities for the sector. For instance, Biden’s proposed $1.7 trillion green infrastructure initiative could promote a carbon neutral electricity sector through carbon-free energy production as well as increased investment in transportation and industrial electrification. Those initiatives could also stimulate growth in energy efficiency, mitigate growth in the oil and gas and thermal coal sectors, while potentially providing significant investment opportunities in the electricity transmission and distribution networks. About one-third (32%) of energy executives expect that, under a Biden administration, sustainability and energy transformation policies could potentially introduce risks to their businesses (compared to an 18% average across all sectors surveyed), according to a recent PwC survey. While Biden’s clean energy proposals may well present challenges to the fossil fuel industry, they may also present electric utilities with numerous opportunities.
Energy executives also express concern over US corporate tax policy under a Biden administration term, with greater than half (55%) agreeing that such policies could potentially create risks for their companies (compared to 62% average of all industries surveyed). However, only a small minority (16%) see non-US taxation as potentially introducing risks to their businesses during a Biden term. The sectors may also be signaling a pullback in trade and/or investment activity in China under a Biden administration, with 29% of those surveyed saying they expect a net decrease in such activities. That differs markedly from expected net decreases they expect elsewhere (18% in the UK; 16% in USMCA; and 18% in the UK).
Democrat Joe Biden ran as a moderate, projecting an aura of predictability. As the policy pendulum begins to swing back toward the center, financial services (FS) executives are considering what might change, and by how much. With a fragile economy and an active pandemic, a Biden administration will almost certainly pursue growth through aggressive spending initiatives. Biden will also likely look to the tax code; in a recent PwC survey of FS leaders, more than two thirds (69%) of those we asked were concerned about new risks from corporate taxes in a potential Biden administration. They were reacting to Biden’s proposal to increase the corporate income tax rate to 28%. Biden has also hinted at adding fees on certain liabilities of financial institutions with more than $50 billion in assets. He may also seek to raise revenue by letting some provisions of 2017’s Tax Cuts and Jobs Act (TCJA) lapse while keeping some offsetting increases in effect.
In many ways, a Biden administration’s policy options are limited. Many financial reforms of the past four years may now be accepted as the new normal, and Biden may not want to use political capital in this area, especially with so many other priorities to address. And without a strong supporting hand in Congress, he may find it hard to maneuver.
The country still faces deep political divisions, and a conservative-leaning Supreme Court may keep more dramatic moves in check. While Biden will choose Cabinet members to his liking, leadership posts at agencies from the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) to the Consumer Financial Protection Bureau (CFPB) and the US Federal Reserve will likely be held by Trump appointees through 2022.
A Biden administration will likely feel very different, with more immigration- and trade-friendly policies, reinforced by a less isolationist foreign policy. Similarly, we expect more rules focused on consumer protection, with a greater focus on diversity and climate change measures. But FS observers may find that, at least at first, the Biden administration represents stability.
Democrat Joe Biden has proposed a return to the Obama administration’s approach to healthcare, including building on the Affordable Care Act (ACA). Broadly, healthcare executives can expect an administration that sees a more active role for the federal government in ensuring access to care for Americans. A Biden administration is likely to seek patches to gaps in coverage (including the creation of a Medicare-like public option), greater scrutiny of industry mergers and acquisitions and a more active role for the federal government in addressing the pandemic. Executives also can expect a Biden administration to push for remedies in the event the ACA is struck down by the US Supreme Court in the spring, although it likely would need congressional support for significant measures.
All healthcare organizations should prepare for the possibility that more Americans could gain insurance under Biden, and that many could, through richer federal subsidies, be able to afford more coverage. This could mean more subsidized customers for payers selling plans on the ACA exchanges and new Medicaid beneficiaries for managed care organizations. This also could mean fewer uninsured and underinsured patients for providers and additional covered customers for pharmaceutical and life sciences companies.
Lawmakers in both parties have called for an end to so-called “surprise medical billing” and for an increase in transparency in the costs of care, especially drugs and medical services and procedures. Such measures would affect providers, payers and the pharmaceutical industry. The health system will continue its transformation into a more consumer-centric, digital, virtual, value-based and portable model that is open to more new entrants.
Companies should adapt to the profound changes underway. This includes:
Source: PwC’s in-depth review of Biden’s plans for US healthcare
As US manufacturers continue to look for paths toward an economic recovery, future growth and job creation, tax and trade policy under a Biden administration will be top of mind. Most manufacturing executives expect that corporate tax rates will likely increase in order to help offset the government’s COVID-19 relief expenditures regardless of which party controls Congress, according to a PwC Pulse survey in the weeks before the US election. They’re also concerned about taxes outside the US, with 68% of manufacturing leaders agreeing that growing international tax policy uncertainty in multiple jurisdictions is a greater risk to business than potential US tax policy changes.
Trade policy, however, seems to stir less consternation among leaders in the sector. Just one in four respondents (26%) believe that new trade agreements under a Biden administration could potentially introduce new risks to their businesses, and a similar percentage (23%) agree that US-China relations would do so. US manufacturers may well continue reconsidering global footprints and trade strategies under a Biden administration, specifically rethinking entrenched single-sourcing in China. Biden’s plans to incentivize manufacturers to create US jobs and his proposed $2 trillion green infrastructure initiative could also benefit US manufacturers and contribute to a rebalancing of global supply and sourcing. A recent PwC survey found, for instance, less than one-third (30%) of industrial products respondents agreed that their investment and trade would experience a net increase in China under a Biden administration. Meanwhile, expectations for net increases are somewhat higher elsewhere: USMCA region (32%), EU (40%) and UK (39%). On the M&A front, nearly two-thirds of US manufacturers expect regulatory scrutiny surrounding deals to increase under a Biden administration, but most (69%) still plan to pursue an acquisition over the next year.
Under a Biden administration, US manufacturers will likely:
Look for further cost-cutting and growth strategies to offset higher corporate tax rates
Rethink global supply chain footprints to cut costs and add resiliency
Position themselves to contribute to green infrastructure build-outs
Pursue growth through M&A, despite possibly greater regulatory scrutiny
Amid mounting scrutiny from consumers and policymakers, Democrat Joe Biden has called for more rigorous data standards, similar to the European Union’s General Data Protection Regulation (GDPR), which tech, media and telecommunications (TMT) companies are already anticipating.
Biden has also indicated interest in reforming Section 230 of The Communications Decency Act to shift more responsibility to digital platforms for content moderation. His attorney general pick will signal the policy direction on antitrust, following the House Antitrust Subcommittee report that has laid out Democrats’ vision of a revamped antitrust policy.
TMT leaders told us they anticipate an increase in the corporate rate regardless of the election outcome to offset the pandemic response. However, the new administration has indicated it will also invest in rural broadband infrastructure and provide incentives for tech innovation and re-shoring of supply chains, while penalizing companies that move operations overseas.
Biden has promised to expand the high-skilled visa program, a move TMT companies hail as vital to the workforce. Workers displaced by automation can expect support from a Biden administration for retraining via community colleges, which will be important to TMT leaders who plan to automate more business processes in the year ahead. A Biden White House is also expected to support measures to increase diversity and inclusion in the workplace while advocating for more protections for gig workers.
While renewing economic and tech ties with China, Biden will likely also pursue a policy that seeks collaboration with allies to combat digital security issues and intellectual property rights, a move that draws deep support from TMT leaders. They are more likely to increase trade with China under a Biden presidency rather than decrease.
What to expect:
Increased scrutiny of data and privacy and interest in addressing concerns about misinformation.
Incentives for reshoring supply chains.
Easing immigration for high-skilled workers.