Divided government with a Harris White House: What it means for business
While key economic indicators provide some optimism about the economic outlook, forecasts and US macroeconomic data have been all over the map in the months leading up to the election. Some worries about the labor market eased after September’s jobs report came in higher than expected, but the manufacturing sector continues to contract. This economic volatility and a tense geopolitical landscape add to the uncertainty around the election.
The results of this election could mean a limit on major change coming out of Washington. Should Kamala Harris win and Republicans take control of the Senate, her administration would face barriers to the most ambitious parts of her agenda — meaning fewer large-scale policy changes to the business environment.
This wouldn’t come as a big surprise to business leaders. In our October 2024 Pulse Survey, 76% of the US executives responding agreed or strongly agreed that there would be a divided government after the election. In addition, 77% expected an increase in executive orders and 75% expected both more regulation and litigation, regardless of who won the election.
The prospect of a divided government would likely come as a relief to some executives, particularly when it comes to taxes. Divided control of government makes it harder to pass major tax legislation and will require compromises. In her campaign, Harris proposed raising the corporate tax rate to 28%. If that were to pass, 75% of the executives in our survey said their company would significantly reduce domestic investments.
Given the likely tight congressional margins, Harris would have to reach across the aisle to secure votes to pass any major legislation.
In our October 2024 Pulse Survey, 76% of the executives surveyed expected the election would result in divided government. Nearly as many (74%) predicted this would improve their company’s risk profile, presumably because shared power would serve as a check on policy overreach by either party. Even so, similar numbers told us they’d anticipate more business litigation, regulation and executive orders (EOs) regardless of who becomes president. Almost as many (71%) believe post-election trade and tax policies will hurt US competitiveness, regardless of who’s in the Oval Office.
Under a Kamala Harris administration, executives in our survey said economic policy, corporate taxation, climate policy and technology, AI and data regulation were among the top policy risks to their company. A Republican-controlled Senate would likely challenge Harris administration efforts on these and other priorities, reducing the chances for major legislation and forcing the White House to rely heavily on EOs to implement its agenda. Republicans would also likely challenge the administration’s efforts to fill cabinet, agency and judicial positions and to ratify potential trade deals. They might also conduct oversight hearings and inquiries challenging the administration’s priorities.
Without new federal legislation, we’ll likely continue to see states filling the void in key policy areas like climate, AI, privacy and tech regulation, as well as reproductive rights. Another check on White House policy will be the Supreme Court’s repeal of the Chevron doctrine, as well as other recent decisions that limit the powers of regulatory agencies.
We do expect movement on some issues where there are areas of agreement between the parties, including China, national security, industrial policy and supply chains, trade, energy independence, privacy and cybersecurity. In many cases, however, the parties agree on the high-level objectives but not necessarily the means to get there. Finding consensus on legislation will require considerable effort and pressure from stakeholders.
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In our October 2024 Pulse Survey, 82% of financial services (FS) executives said they expected the election to produce a divided government. Should Vice President Kamala Harris win and Republicans take control of the Senate, her ability to implement her economic plans, such as raising the corporate tax rate or instituting a government-funded subsidy for first-time home buyers, would face barriers. So would her ability to decide who runs important agencies. Seventy-four percent of FS executives told us divided government would improve their company’s risk profile.
Given the continued resilience of the US economy, FS executives may reexamine their acquisition and divestiture plans in the wake of a Harris victory. In our survey, 84% of FS executives said the election outcome will affect, either somewhat or to a great extent, their company’s business decisions about deals. Federal antitrust regulators would be expected to remain active under Harris, though major changes in antitrust policy likely wouldn’t happen right away. The Federal Trade Commission would likely maintain its Democratic majority at least until May 2025, allowing for continuity in enforcement efforts.
FS executives told us they’d still continue to invest in technology modernization no matter how the election goes. Technology will likely remain a perennially big budget item in FS considering its potential efficiency gains through hyperautomation as well as its possible boost to competitiveness, compliance and growth.
The election isn’t changing expectations for more rules. Roughly three-quarters of FS executives in our survey said they expect more regulation (76%) and executive orders (72%) no matter who wins.
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Should Vice President Kamala Harris take the White House alongside a Republican Senate and Democrat House, she’ll likely still look to push forward several healthcare priorities she championed during her campaign. These include initiatives focused on making healthcare more equitable and improving the cost of and access to healthcare coverage.
Through the executive branch alone, a Harris administration is likely to work to expand access to reproductive healthcare, expand Medicaid and reduce the burden of medical debt via the American Rescue Plan (ARP) by using executive orders (EOs) and federal agencies to advance these priorities.
She could, however, encounter obstacles in advancing other priorities that require congressional action in areas where there is less or no bipartisan support. Examples include strengthening and renewing subsidies of the Affordable Care Act (ACA), negotiating prices for at least 50 prescription drugs annually and expanding certain health-related provisions of the Inflation Reduction Act (IRA) — such as commercial plans including $2 cost sharing for generics, $35 insulin and out-of-pocket cap of $2,000 for drug costs). A divided Congress might oppose these initiatives, preferring to allow ACA subsidies to expire and potentially restricting IRA pricing provisions. Republicans may advocate for other budget-cutting measures, but those decisions would be weighed against competitive marketplace considerations.
Several priorities with more bipartisan support may still see legislative movement despite a divided Congress. Examples include increasing transparency for pharmacy benefit managers (PBMs), increasing targeted tariffs and enhancing access to services that allow seniors to remain at home.
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In our October 2024 Pulse Survey, 76% of executives predicted a divided government. While a Kamala Harris presidency could mean a push toward more progressive economic policies such as increasing corporate tax rates, a Republican majority in the Senate could moderate these measures. This balancing may be why 74% of executives said divided government would improve their risk profile.
When asked about a corporate tax rate of 28%, 75% of executives in our survey said their companies would respond by significantly reducing investments in the United States. In addition to US tax and economic policy risks, 34% of executives in our survey cited tech, AI and data regulation among the top 3 policy risks under a Harris administration. General regulatory oversight remains a primary concern, as bipartisan scrutiny of Big Tech continues, and the recent Chevron ruling suggests that agencies like the FCC and FTC may have reduced authority to interpret regulations. Prioritizing investments in compliance and sustainability could also gain traction domestically as Europe tightens carbon emissions regulations, pushing companies to focus on initiatives that go beyond mandatory requirements.
TMT companies should prepare for an increasingly litigious and disruptive regulatory environment, with cybersecurity and antitrust in the spotlight. Given the regulatory focus on national security, especially tech infrastructure, TMT executives should also expect growing pressure to demonstrate robust cybersecurity protocols.
Protectionist trade policies could mean bottlenecks and increased costs within global tech supply chains. TMT executives will continue tracking this development, as 81% said that the outcome of the election would affect their trade decisions somewhat or to a great extent. Most executives (77%) said there will be more executive orders regardless of who is president. Still, the bipartisan consensus on China suggests that tariffs and other restrictions on Chinese imports — especially tech-related goods — will likely continue.
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An election leading to a divided government shouldn’t be surprising to business executives. According to our October 2024 Pulse Survey, 76% of executives surveyed expect a divided government. Should Vice President Kamala Harris win and Republicans take the Senate, there’s a heightened potential we’ll see more executive orders (EOs). In fact, 77% of executives in our survey said they expect more EOs regardless of who wins the White House. The Biden administration’s focus on establishing a federal regulatory framework for cybersecurity practices across industries is already well-established with EO 14028, and a Harris administration would likely continue this work.
The National Cybersecurity Strategy Implementation Plan is another example of broader executive branch influence. Given that the National Cybersecurity Strategy has bipartisan support, it would be an important reengagement point for Harris to bolster cybersecurity through sector-based and technology-based threat mitigation. The initiatives recommended in the National Cybersecurity Implementation Plan Version 2.0 are still being implemented across agencies.
However, one of the challenges that would remain for a Harris administration with a Republican-controlled Senate is harmonizing cybersecurity regulations. Both sides have interpreted harmonization differently. Democrats are still considering different approaches for harmonizing existing regulations and Republicans are looking to reduce regulations altogether.
A unifying path a Harris administration might explore is the Cyberspace Solarium Commission (CSC), a bipartisan advisory body formed in 2019. The CSC’s reports have contributed to cybersecurity policy recommendations that have been enacted into law. Respected by both parties, the CSC could be a source for agreement on private and public sector priorities.
Both sides would likely prioritize additional cybersecurity focus on artificial intelligence (AI), connected devices and critical infrastructure. However, the policy methods to align the industry on more robust cyber practices could be at odds.
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The next Congress is likely to prioritize tax policy, especially with key individual provisions of the 2017 Tax Cuts and Jobs Act (TCJA) expiring at the end of 2025 and several significant business tax provisions set to change.
Vice President Kamala Harris has proposed increasing the top US corporate tax rate to 28% from 21%, a prospect that’s causing concern for some public companies. Across the C-suite, 75% of executive respondents to our October 2024 Pulse Survey said that their company would significantly reduce investments in the United States if the corporate rate increased to 28%.
Divided control of government makes it harder to pass major tax legislation and will require compromises. A Republican-controlled Senate generally would likely oppose tax increases that Harris might propose, but some measures could be adopted as part of a bipartisan agreement to address the expiring TCJA individual tax provisions and avert across-the-board tax increases. Congress also could change other business tax rules in ways that would increase the tax corporations pay even if the 21% rate remains in place.
Individual provisions that are scheduled to expire include the 37% top individual income tax rate on ordinary income, the 20% deduction for pass-through business income and the higher standard deduction. Without action, key international business tax rates will increase, including the rate of tax on global intangible low-taxed income (GILTI), the rate of the base erosion and anti-abuse tax (BEAT) and the foreign-derived intangible income (FDII) rate.
The next Congress could also revisit other recently enacted tax legislation, including clean energy tax credits and incentives that were part of the 2022 Inflation Reduction Act (IRA). While some Republican leaders have indicated that a full repeal-and-replace approach to the IRA provisions appears unlikely, they have expressed an interest in prospective efforts to address the rising cost of the clean energy incentives.
As debt concerns mount, the fiscal cliff becomes steeper, leaving Congress to look elsewhere for revenue. The deficit in 2025 is projected by the Congressional Budget Office (CBO) to exceed $1.9 trillion, and interest costs to service that debt will be $1 trillion. By contrast, in 2017, when TCJA was enacted, the deficit was $665.7 billion and interest costs were less than $300 billion.
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How fast and how far might a Kamala Harris administration extend the US protectionist stance laid out in 2018-19 and left largely unchallenged during Joe Biden’s presidency? This should be a key consideration given the emergent bipartisan consensus in Washington to pull trade, tax, regulatory and investment levers to support strategically important industries.
How fast? Harris has expressed discomfort in using blunt trade measures to jolt US relations with trade partners, and she has criticized the idea of imposing tariffs across all imports. It’s likely that a Harris administration would maintain Biden’s trade trajectory on tariffs with a hardening stance toward China, considering the recent new and proposed increases to tariffs on Chinese imports of steel, electric vehicles, advanced batteries, solar cells and other products.
How far? Harris has shown interest in tying trade negotiations to other policy goals, for example with pro-environment and labor provisions. In 2020, as a senator, Harris voted against replacing NAFTA with the United States-Mexico-Canada Agreement (USMCA), citing insufficient measures to address climate change. With the USMCA up for review in 2026, she might be inclined to establish priorities on trade over the next year. The new tariffs on steel and aluminum from Mexico, effective this year, indicate that the US continues to extend its trade policy reach vis-a-vis goods transiting USMCA partners. Separately, Harris’s “America Forward” plan for tax credits, outlined during the campaign, makes clear her intentions to continue shaping policy to protect US competitive advantage in critical industries.
A president can impose tariffs under many conditions, including unfair trade practices, without Congress. Congress nonetheless may push for certain provisions as part of its role in monitoring and oversight of US trade arrangements, for example, during the USMCA review period.
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The message from US executives ahead of the elections was clear: It would be full steam ahead on artificial intelligence (AI) no matter who won. In PwC’s October 2024 Pulse Survey, 52% said a Kamala Harris victory would lead to increased AI investments. Fifty-three percent said the same about a Donald Trump victory. In both scenarios, only 5% said AI investments would decrease. Since AI is becoming a foundational technology, like the internet — intrinsic to everything companies do — it’s bigger than any election. The technology will keep advancing. The value it creates for business will keep multiplying too.
But a divided government matters. It’s uncertain how a Harris administration would seek to regulate AI. It could take a lighter touch, similar to how the Clinton administration addressed the rise of the internet. Or it could seek tougher regulations, building on President Biden’s executive order on AI or moving closer to the European Union’s AI Act.
How to regulate AI hasn’t been a prominent topic leading up to the election, and AI hasn’t been a strict partisan issue to date. That may make compromise possible on core issues related to AI policy and standards. Compromise may be tougher on a critical AI foundation — energy. The computational systems and data centers that support AI and cloud require vast and growing amounts of electricity. A Harris administration could issue executive orders to advance renewable energy initiatives. These orders would be a strong indicator that companies should prioritize sustainability, adopt clean energy technologies and prepare for stricter environmental regulations.
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In our October 2024 Pulse Survey, 74% of executives said divided government would improve their organization’s risk profile, likely a sign they believe shared power will force both parties to compromise on any major legislation. That said, executives agreed or strongly agreed there would be more regulation (75%), litigation (75%) and executive orders (77%), regardless of who is in the White House.
Assuming a divided Congress, a Kamala Harris administration would likely concentrate on maintaining Biden-era policies that prioritize sustainability in alliances, trade and economic plans, and federal agencies would continue implementing the Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Law (BIL), aiming to cut greenhouse gas emissions and improve infrastructure. Companies should prepare for the prospect of a continued level of intensity from agencies such as the EPA and the SEC, although political divisions and legal challenges might slow the implementation of regulations, including the SEC’s climate disclosure rules.
In a divided government scenario, a Harris administration and Democrats would need to reach across the aisle to enlist support to pass any legislation related to sustainability. The Harris campaign platform includes positioning the United States as a leader on the global response to climate change, with support for clean energy investments and improved home energy efficiency. It’s unclear what a divided government might mean for her stances on automobile emissions and fracking (which she said during the campaign her administration wouldn’t ban). Civil rights and anti-discrimination protections may also be key issues.
There’s room for bipartisanship on certain sustainability issues. Many Democrats and Republicans want resilient supply chains, fair trade, US-based manufacturing and energy independence. One rare area of agreement between the campaigns is the threat of EV imports from China, but enacting legislation will require considerable compromise that both parties have struggled to demonstrate the last few years. Often the parties agree on the high-level objectives but not necessarily the means to get there. Regardless of the specific political outcome, business leaders should continue to consider sustainability risks and opportunities across their operations, products, supply chains and business models to address the threats to their long-term strategies as well as potential areas of growth.
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Federal antitrust regulators are expected to remain active under a Kamala Harris administration, but major changes in antitrust policy likely wouldn’t happen right away. The Federal Trade Commission (FTC) will likely maintain its Democratic majority until May 2025, allowing for continuity in enforcement efforts. This means any significant shifts in antitrust policy will develop gradually as leadership transitions and confirmations unfold. Any major changes would likely impact highly regulated industries, including pharmaceuticals, biotech and air travel.
The FTC and Justice Department have already been pursuing cases to crack down on a range of activities they view as anticompetitive as they seek to broaden longstanding antitrust case law. And while this effort might take time, it could have a negative effect on M&A activity.
Regulators in the Department of Justice, the Department of the Treasury and the Department of Commerce, among others, have gotten more involved in reviewing and restricting international deals. A broad US political consensus that viewed globalization and increasing free trade as generally positive began to unravel in the 2010s. More populist initiatives, including a renewed focus on industrial policy, have added new wrinkles to cross-border M&A. International deals aren’t dead by any means, but they have gotten more complicated.
Harris’s proposal to increase the corporate tax rate to 28% could alter the economics of M&A in the US. Higher taxes reduce after-tax profits, making companies less attractive to potential buyers. Increased tax burdens also reduce cash flow, limiting their ability to finance deals. Companies may also reconsider large transactions due to the higher cost of capital, leading to more cautious dealmaking.
A Republican-controlled Senate generally would oppose tax increases that Harris might propose, but some limited measures could be adopted as part of a bipartisan agreement to address the expiring TCJA individual tax provisions and avert across-the-board tax increases.
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The road ahead: How the 2024 election will impact your business
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