MERISTEM INSIGHTS

POLITICS AS UNUSUAL

We recently hosted a Meristem client event with futurist Jack Uldrich to discuss his latest book, Business as Unusual. The session was insightful and helped us all see beyond the noise of today and uncover longer-term themes. After a week as dramatic as this, we are borrowing his title and are seeking to take that same approach to American politics. The incoming Biden administration received a big boost this week as Democratic victories in the Georgia run-offs shifted the balance of power in the U.S. Senate. As a result, equity markets witnessed a swift rotation to companies that would potentially benefit from anticipated new legislation. As we look ahead, we believe there are two critical questions to contemplate: where does additional revenue get generated from for the potential increased spending, and how significant will the change be in policy and legislation.

Projected Biden Plan/Estimated Tax Rates dated 1/8/2021

The former question of who may bear the brunt of additional spending is addressed in the chart above. In our view, corporations could effectively cushion the tax increase with financial innovation. However, small businesses and individual families may be disproportionality impacted and will need to plan for potential changes. A surprise to many is just how slim the majorities are in both the Senate and the House of Representatives. The chart below provides a perspective on the House of Representatives and how the current majority compares to the last 120 years.  This tight margin in the House and the Senate could result in policy and legislation that may not be as significant of a change as laid out during the campaigns in 2020.  For now, prepare for Politics as Unusual.

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