Goldman Sachs' top economist says the size of a new Democratic majority in the Senate would be critical to the amount of stimulus it passes

• Goldman Sachs' Jan Hatzius wrote on Monday that the size of the next fiscal stimulus package would depend on the size of a new Democratic majority in the Senate.
• A narrow majority would likely result in less fiscal stimulus than a larger majority of 53 or 54 seats, Hatzius said.
• Hatzius also said that a sizable Democratic majority would increase the likelihood of other policies such as infrastructure spending, antitrust legislation, an increase in the minimum wage, and the elimination of the legislative filibuster.
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Goldman Sachs is forecasting that Congress will pass fiscal support next year but that the amount will depend on election outcomes and particularly the makeup of the Senate.

"Next year, fiscal policy depends on the election outcome, but in our view it depends more on the outcome of Senate elections than the presidential election result," a Goldman team led by the chief economist Jan Hatzius wrote on Monday. "Fiscal policy differences between Republicans and Democrats in the Senate are greater than differences between the presidential candidates."

A new Democratic majority could result in "substantially more fiscal support," the chief economist said, adding that multiple polls and statistical models have suggested that Democrats are likely to win control of the White House, the House, and the Senate on November 3.

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If the Senate remains under Republican control, Hatzius expects smaller fiscal stimulus, regardless of who the president is. But the extent of a Democratic majority could determine the size of a stimulus package, he said.

"Not only is Senate control critical to policy outlook, but the size of the majority has taken on new importance," Hatzius said. "A narrow Democratic majority in the Senate (e.g. 50 or 51 seats) would likely result in less fiscal stimulus than a larger majority (e.g. 53 or 54 seats) but also smaller tax increases."

A larger Democratic majority in the Senate would also make the elimination of the legislative filibuster more likely, which would ease the passage of substantial initiatives like infrastructure spending and "increase the probability of substantial changes to regulatory policies, antitrust rules, the minimum wage, and more," Hatzius said.

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With a Democratic sweep, fiscal stimulus in the first quarter of 2021 would likely be followed by infrastructure and climate legislation, Hatzius said. He said he expected legislation expanding healthcare and other benefits, financed by higher taxes, in the third quarter.

"The boost to growth from fiscal stimulus would outweigh the negative effects of tax increase, particularly in light of the fact that the increased tax revenue would go to fund new spending," Hatzius said.

If President Donald Trump wins reelection and Congress is controlled by Democrats, a "substantial fiscal stimulus package" and an infrastructure program are still likely, Hatzius said.

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