Insight

The federal agenda 2021 outlook

KPMG and Eurasia Group explore the Biden administration’s agenda for 2021.

We’re dealing with four U’s: unprecedented politics, an unparalleled health crisis response, unique economic impacts and recovery, and vast uncertainty—in our capital markets and in our democracy. But we’re beginning to see a light at the end of the tunnel.
Lorna Stark, national industry leader, Government and Public Sector, KPMG LLP

During a February 16 webcast, speakers from KPMG and Eurasia Group discussed the priorities for the federal agenda during the first year of the Biden-Harris administration—including fiscal stimulus, climate, tax, and U.S. trade—and the implications for business. The following are four key takeaways from the conversation:

1.  Fiscal stimulus is likely to fuel an economic recovery.


KPMG LLP Chief Economist Constance Hunter predicts that despite the impact of COVID-19, the U.S. is expected to be one of the best performing developed markets due in no small part to significant fiscal and monetary stimulus and substantial progress on vaccinations.

GDP to rebound and grow above trend until 2024

Annual real GDP growth
Source: KPMG Economics, Bureau of Economic Analysis, Haver Analytics

 

“This is the worst recession since World War II,” said Hunter. “But we’re looking at a somewhat bright future due to Biden’s proposed $1.9 trillion fiscal relief plan. That would put us above potential GDP for the next three years.” High vaccination rates, relative to other countries, are also expected to boost the economic recovery. However, not all industries will recover at the same speed. “The recovery is K-shaped across many dimensions: geography, industry, and households,” Hunter added. 

Anatomy of a K - the growth rate does not tell the story

  • Economists have termed the uneven impact of the pandemic a K shaped recovery, meaning it is a recovery for the top leg of the K and not the bottom leg.
  • Companies that are delivering goods and services to households to improve their experience or enable work from home are doing well.
  • Good consumption is rising due to higher demand.
  • Services consumption lags due to lack of supply of many series within the economy.

Source: KPMG Economics, Bureau of labor Statistics, Census Bureau, Federal Reserve Board, Haver Analytics


2.  Environmental issues as a policy priority.

The new administration has identified climate as an immediate policy priority. President Biden’s appointees are likely to take aggressive action on climate change that will “[touch] everything”—including stimulus, tax policy, foreign policy, and the U.S. Securities and Exchange Commission’s agenda,” according to Eurasia Group Managing Director Jon Lieber. He noted, “Climate change will be everywhere in this administration.”

 “The Biden agenda around climate is being met with much more engagement with stakeholders,” said Hunter, referencing data showing a growing trend in the percentage of S&P 500 companies recognizing climate change as material to their bottom lines in their annual reports. “This should be at the forefront of the minds of boards and company leaders as they try to make this have a less deleterious impact on the bottom line.”

3.  Tax law changes on the horizon.

Democratic control of the new Congress increases the likelihood for tax increases. Members of Congress are expected to use special budget reconciliation procedures that allow certain types of legislation to pass with a simple majority vote without being subject to a filibuster (the same method used to enact the 2017 Tax Cuts and Jobs Act).

“I expect we’ll have higher taxes in some way by February 2022, but we’re not sure yet which taxes and how much,” said John Gimigliano, principal-in-charge of Federal Tax Legislative and Regulatory Services at KPMG LLP. Gimigliano highlighted a number of Biden’s tax proposals most likely to impact businesses, including the possibility of:

  • Increasing the top statutory corporate income tax rate to 28 percent.
  • Creating a new corporate minimum tax on global book income of $100 million or more.
  • Increasing the tax rate on certain foreign income.
  • Providing new or expanded business tax credits for various activities (including domestic manufacturing).
  • Making various changes relevant to specific industries (such as pharmaceuticals, real estate, fossil fuels, energy, natural resources, and banking).

4.  U.S. trade posture returns to multilateralism.

Biden continues to reengage the U.S. on the world stage, taking a measured approach—resetting the relationship with key U.S. allies (such as the EU) where interests have historically been aligned and pursuing constructive but firm strategies toward China and Russia on key issues like digital services taxes and data privacy. While noting that pressures for a return to free trade, open borders, and global supply chains will influence U.S. trade policy longer-term, Lieber predicted that the United States-Mexico-Canada Agreement (USMCA) and the existing tariffs against China are likely to remain in place. “The USMCA is here to stay and has buy-in from all parties, although there may be tension caused by U.S. enforcement of some provisions [such as those pertaining to labor],” said Lieber.

On China, Lieber believes it is unlikely that Biden will be able to extract concessions from Beijing on U.S. access to the China market and intellectual property protection for U.S. companies doing business in there, which would be precursors to reducing tariffs.

Read the latest insight from the KPMG Office of the Chief Economist

Moderator

Lorna Stark

Lorna Stark

National Government & Public Sector Leader, KPMG US

Featured speakers

Constance L  Hunter

Constance L Hunter

Principal and Chief Economist, KPMG US

John P. Gimigliano

John P. Gimigliano

Principal, Washington National Tax, KPMG US

Jon Lieber

Jon Lieber

Managing Director, Eurasia Group

The views and opinions expressed herein are those of the interviewees and do not necessarily represent the views and opinions of KPMG LLP.

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