Continuing our analysis of the US election, here we provide a short briefing on the election results and their implications. This is a synopsis of the insights we shared in our "Post-Election Analysis: The Future of US Policy and Implications for Businesses and the Economy" webinar, with commentary added on the Biden transition team's activities.
Balance of Power
In the Senate, Republicans currently have 50 seats, and the Democrats have 48. Two seats in Georgia will be decided by runoff on January 5, 2021. The Democrats would need to win both seats to prevent the Republicans from holding their majority. If there is a 50-50 margin, the vice president would break the tie, giving the Democrats a majority. However, the Republicans likely will win at least one seat, preserving their majority. In the House, the Democrats currently have 222 seats, and the Republicans have 212. Regardless of which party wins the three undecided seats, the Democrats will keep their majority, but it will be slim, with the Republicans having gained at least 15 seats.
So what would all of this mean for the balance of power? President-elect Biden would need bipartisan cooperation to get major initiatives enacted. His nominees likely would be more moderate or consensus choices who can be confirmed quickly by a Republican-controlled Senate. Democrats likely would be unable to overturn Trump-era regulations from 2020 using the Congressional Review Act—a procedure that President Trump and the Republican Congress used from 2017 to 2018 to overturn 16 Obama-era rules. And Republicans in the Senate can use their oversight authority to scrutinize executive orders. In the House, Speaker Pelosi will only have a slight majority with which to pass legislation.
The transition team performs two main functions to help the incoming administration smoothly take over the federal government. The first is inventorying the issues that need immediate attention at each of the major federal departments and agencies. Typically, this does not involve the development of policies. Policies have already been developed by the campaign. The Biden campaign, in fact, has published a number of issues papers going into great detail about the policies the administration would like to advance.
The transition team's second task is compiling a list of candidates for the 4,000 political appointment positions that the president can fill. Four thousand may sound like a lot, but it's not when you consider that there are 2.1 million federal civil service employees, not counting postal workers. Of the 4,000 appointments, about 1,200 require Senate confirmation. These include, among others, the cabinet, immediate sub-cabinet and ambassadorial positions. But the other 2,800 positions, those that do not require confirmation, are often very powerful roles, and their occupants can start work immediately upon appointment. The Biden transition team has been broken into 39 separate landing teams, each responsible for certain departments and agencies. For example, there are separate landing teams for the Departments of Justice, Commerce and Transportation and for the intelligence community. Each team is composed of 5–20 people. The names and affiliations of the team members, all of which were recently published, provide some clues on the policy direction of the Biden administration.
For example, the Transportation landing team includes a representative from the Teamsters Union. That reflects the commitment by President-elect Biden to ensure job retraining for workers displaced by automation, particularly in the trucking industry. That team also includes a representative from the Plumbers' and Pipefitters' Union, reflecting a Biden promise to require prevailing wages and promote union labor agreements on federally funded infrastructure projects. Finally, the team includes a representative from the California Energy Commission, which reflects the president-elect's commitment to push the development of electric vehicles.
The transition team will disband on January 20, 2021, the day when Biden is sworn into office. Thereafter, the personnel function will be performed by the White House Office of Presidential Personnel. The job of inventorying pending issues will fall to the earliest appointees, who often will be persons filling positions not requiring Senate confirmation, often persons who served on the transition team.
Financial Services Policy
During the first two years of the Biden administration, any change to financial services policy is going to be a bit muted because it looks as if the Democrats will not secure control of Congress. A "blue wave," with the Democrats winning the Senate as well as the House and the presidency, would have paved the way to substantial legislative reforms, changes, such as a Dodd-Frank II Act, being enacted and signed by the president early in the administration.
Instead, reform will come through regulation by the financial service regulators. They likely will use their broad authority to implement a series of reforms that largely will likely fall into three buckets.
Environmental policies will be a theme of the Biden administration, something that unifies Democrats and brings along a fair number of Republicans.
For financial services policies, that means that the Securities and Exchange Commission (SEC) is very likely to promulgate rules that would require public companies to adopt new disclosures about, in particular, their risks to climate change and, potentially, their use of carbon-based energy or their lending to carbon-based energy producers and users.
New environmental policies with respect to financial institutions could include capital charges from the federal financial banking regulators to require banks to set aside additional risk-based capital for loans to energy companies and other carbon-based energy producers and potential heavy users. Regulated depository institutions could also be required to incorporate climate change risk assessments into their risk management procedures.
New prudential regulations likely will be considered for purely non-bank consumer lenders. For example, the Federal Reserve System and the SEC suggested considering capital and liquidity requirements for certain nonbanks in their recent reports on their examination of the resiliency of the financial system during the March 2020 financial turmoil due to COVID-19 and their finding some weaknesses in the non-banks financial sector. This area likely will continue to get attention in a Biden administration.
Similarly, credit bureaus are also likely to be a policy focus. The Biden team already has indicated that it would support the establishment of a public government-owned credit bureau to provide credit scores that would be used in any federal lending program. Although such a reform might require legislation to implement, the incoming administration's support of such a bureau signals a desire for substantial reforms in that sector.
Fair lending issues are going to be at the top of the agenda for the Biden administration, and fair lending enforcement likely will be expanded. Along the same lines, a new Community Reinvestment Act rule will likely be finalized by the banking regulators as that rule dovetails well with the focus on fair lending and the inclusion agenda that the Biden team intends to make a policy priority.
Tax and Trade Policies
One thing to note up front is what will likely not be available to the Biden administration—the budget reconciliation process. Budget reconciliation is a procedure where the Senate can enact major fiscal policies with only 51 votes, thus avoiding filibusters. With the Senate likely remaining in Republican hands, that will not be available to the Democrats, and, as a result, most of the big tax policy changes the Biden administration would push are off the table. Although early on the Biden administration may propose a big fiscal package with lots of tax policies changes, those changes would have to be made and implemented incrementally through the regulatory process.
As the Obama administration did, the Biden administration can use the regulatory process and leverage existing statutes. It's not as easy as writing an executive order, and it is not a fast process. This is rulemaking, which requires the full Administrative Procedures Act process to be followed in order to bulletproof it.
One thing the Biden administration could do early on and relatively swiftly is put more resources toward enforcement—for example, toward enforcing tax law with respect to large corporate and international transactions.
On the trade policy side, much of Trump's strategy has been cribbed from the liberal lane of the Democratic party—for example, renegotiating NAFTA, withdrawing from the Trans-Pacific Partnership and pushing for more "buy America" rules. Given this, it's going to be difficult for the Biden administration to introduce sweeping changes in strategy.
But expect a change in tone. Biden is going to try to work on a more multilateral basis with US trading partners. But that may be easier said than done. With many of these trading partners, including the European Union and Japan, the United States has had long-running trade policy disputes that have spanned prior Republican and Democratic administrations, issues that a Biden administration would not be able to quickly resolve.
Finally, crossing both trade and tax are the OECD negotiations regarding digital services tax, and some are overestimating the impact of the change of administration in this area. One thing that Republicans and Democrats are in complete agreement on is that this is America's income to tax and they're not going to let other countries tax that income instead of the United States.
View our previous post-election commentary:
"Post-Election Analysis: The Future of US Policy and Implications for Businesses from an Enforcement Perspective" (Legal Update, November 30, 2020)
"Post-Election Analysis: Consequences for Global Trade" (64-minute webinar recording, November 17, 2020)
"What Does the Election Mean for Congressional Investigations?" (7-minute video, November 10, 2020)
"Post-Election Analysis: The Future of US Policy and Implications for Businesses and the Economy" (57-minute webinar recording, November 5, 2020)
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