Pre-Election Policy Levers

Below is a transcript of this week’s video.

Hi, this is Ilona Vovk with Investment Strategy at Glenmede.

Administrations facing re-election have a big incentive to pull economic levers to maximize their election odds. Among these efforts is the Tax Relief for American Families & Workers Act of 2024 which has been lingering in the Senate. Designed to support businesses and provide some relief to families, the bill proposes $118 billion in net tax cuts for 2024, which represents 0.4% of GDP. While the bill’s immediate prospects are uncertain, there remains a possibility that it could still be enacted, potentially providing an additional dose of legislated fiscal stimulus.

Now another lever at the administration’s disposal is the backlog of ERTC claims, aimed to provide tax credits to employers to maintain their workforces. Post-COVID, as many businesses faced significant challenges, this initiative emerged as a crucial support mechanism to help revive businesses and restore jobs. With over 1 million backlogged applications, it is estimated that a resumption of those payments could inject $100 billion to $150 billion into the economy, providing an extra dose of fiscal stimulus.

A less obvious lever is the Treasury General Account. This is essentially the government's operational checking account, is currently flush with cash after tax season. Heading into the midterm elections in 2022, the Treasury drew down its cash balance from similar levels today, ultimately boosting liquidity as voters headed to the polls. The Treasury may be in a similar position to do so once again ahead of the presidential election this November, spending down excess funds and may offset other liquidity headwinds, including the Federal Reserve’s ongoing quantitative tightening program.

So to summarize, generally administrations facing re-election have a big incentive to pull certain economic levers to maximize their election odds, which appears in progress again this year. If passed, the Tax Relief for American Families & Workers Act of 2024 could provide an additional dose of legislated fiscal stimulus. Additionally, the release of outstanding Employee Retention Tax Credit payouts, which have been backlogged, could potentially provide even more support. And there will likely be another drawdown of the Treasury General Account (TGA) which could enhance the impact of fiscal spending with additionally liquidity support; Basically, the current administration has a number of levers that could provide a relatively large amount of support to the economy heading into this election cycle.

And with that, thank you for listening! And please don’t hesitate to reach out with any questions.