While Election Day is two months in the rearview mirror, the election is not over. A runoff election in Georgia on Tuesday, January 5th, will determine the balance of power in the U.S. Senate, a historically unprecedented scenario that will have a profound impact on President-elect Joe Biden's ability to move his policy agenda forward in the first two years of his presidency.

For investors, it makes it nearly impossible to know what policy initiatives have a realistic chance of being approved over the next two years, casting uncertainty around issues from taxes to energy policy to health care.

But what is assured is an extremely narrowly divided Congress in 2021. Democrats retained their majority in the House of Representatives but lost at least a dozen seats; their margin in the lower chamber is likely to be in the single digits. That, combined with a narrow Senate margin in either direction, is likely to push policymaking toward the center, with the most ambitious campaign proposals of the incoming Biden administration unlikely to succeed.

Here we examine the upcoming runoff elections in Georgia and the potential impacts on the policy agenda of the possible outcomes.

How did we get here?

The unusual situation is the result of two unique circumstances in Georgia. The first is that Georgia is one of just two states, along with Louisiana, that requires federal candidates to get more than 50% of the vote in an election to be declared the winner. If no candidate receives a majority of the votes cast, the top two vote-getters advance to the runoff election.

The second unusual circumstance is that both of Georgia’s Senate seats were on the ballot in 2020.