This is the third and final installment of a three-part series from The Liberty Loft on the economic impact a Biden administration will likely have on Iran, China, and the United States of America.
Charlotte, NC — A Joe Biden administration may lead to wide-ranging changes to public policy. Here’s what the country might expect from a Biden administration.
Polling showed that the coronavirus epidemic was on the top of voters’ minds when they cast their presidential votes and that they trusted Biden over President Trump on handling the coronavirus despite Biden detailing his plans no differently than what President Trump’s administration had already implemented. This is where the legacy media’s negative onslaught paid dividends for the Democrats.
Biden made a campaign pledge to increase funding for coronavirus testing, contact tracing, and measures to isolate and support those sick with the virus. The Democratic House passed the Heroes Act earlier this year, the latest version of which allocates $75 billion to those initiatives.
He also proposed new funding to schools and child-care providers so that they could open safely while providing funds to parents for child care. The House bill directs $225 billion to those efforts.
Meanwhile, Biden said that he’d push governors, mayors, and county executives to institute mandates requiring citizens to wear masks when in public despite how grossly wrong and unconstitutional they might be.
However, if Republicans retain control of the Senate, it’s unlikely that funding will be as robust, but with Biden in the White House, Democrats’ leverage will be significantly greater than during 2020.
Though chances are good that Republicans will maintain a thin grip on the U.S. Senate, thus reducing the odds that a $2 trillion to $3 trillion stimulus package gets passed, the market is betting that more stimulus will still be in the offing, while the lack of large Democratic majorities in Congress will reduce the chances of stiff new business regulations.
“With no blue wave, we are likely to see the Senate remain very closely divided, which will constrain the policy options of whoever wins the presidency,” Brad McMillan, chief investment officer for Commonwealth Financial Network, said in an email. “That probably rules out any substantial activity on taxes, as well as limiting any actions to control the major tech firms.”
On the stimulus front, Senate Majority Leader Mitch McConnell (R-KY) recently said that “we need another rescue package,” and that he hopes one can be done “before the end of the year.” Any McConnell-approved plan would be less than what a Democratic-led Senate would endorse as Democrat bills always have funding to things completely unrelated to COVID. However, markets still expect it to be significant, McMillan said. It will be necessary for the Republicans to stick to their guns and maintain resolve. It is likely the GOP will retain control of the House in 2022. That coupled with a 6-3 Republican majority on the Supreme Court; however, it is more realistic to view it as 5-4.
That said, investors should beware that a return of a Republican Senate and a Democratic White House could bring back debt-and-spending battles that characterized the final six years of the Obama Administration. This will have huge adverse effects on the American people and the nation’s debt.
Of all the incoming president’s policy proposals, Biden’s promise to increase taxes on corporations could have the most direct impact on the stock market.
Goldman Sachs estimates that corporate tax hikes and increasing social security taxes on high earners would reduce earnings for the S&P 500 index from $188 per share to $171, leading to a 9% decline in the value of the index if the price-to-earnings ratio remains the same.
But without a Democratic Senate, the chances that corporate tax increases are coming any time soon are effectively zero, and this realization has also given stocks a boost.
One of Biden’s biggest successes could be in the form of an infrastructure plan for stimulus. Biden’s plans to stimulate the economy to appear to be two-fold, with the first priority being an infrastructure plan intended to spur job creation, similar to the Great Depression-New Deal era of public job programs.
Creating jobs to update and build smart roads, water systems, municipal transit networks, schools, airports, rails, ferries, and increasing broadband access, according to Biden’s campaign website are likely. As of mid-November, the U.S. economy currently has a jobs deficit of about 10.1 million positions from the coronavirus pandemic’s economic effects.
A key Biden campaign message, however, has been that he’s only planning to raise those taxes on the country’s wealthiest earners and corporations. That looks like:
- Everyday Americans: Restoring the top-line tax rate of 37 percent to 39.6 percent, which was reduced after Trump’s Tax Cuts and Jobs Act (TCJA) of 2017. As of 2020 (taxes due in 2021), single filers earning $518,401 or higher and married filers earning more than $622,051 are currently taxed at the top-line rate of 37 percent.
- Corporations: Raising the corporate tax rate from 21 percent to 28 percent, introducing a 15 percent minimum “book” profit tax on companies that earn more than $100 million a year in revenue; making employers pay payroll taxes on wages at or above $400,000 a year (Currently, those taxes are capped on earnings of $137,700).
- Investments: Taxing capital gains as income, regardless of whether they’re a short-term or long-term investment, on earners who make more than $1 million annually; eliminating a “step-up in basis” that allows descendants to pass those investments to heirs tax-free.
Another aspect of Biden’s tax plans supports amping up a child care tax credit that families with dependents up to 13 years in age can use to subsidize half of their child care costs, as long as it doesn’t exceed $8,000 for one child or $16,000 for two children. Families making less than $125,000 annually would be eligible for the full 50 percent credit. After that threshold, a partial credit would be available to individuals whose incomes come in under $400,000.
Biden has also floated the idea of providing a $15,000 tax credit to first-time homebuyers to help them with their first property purchase, similar to the Great Recession-era program meant to get the housing market back on track. The downside to that is possible predatory lending and adversarial lending practices to families who can’t afford the homes to which they’re approved.
Realistically, Biden is going to have a difficult time truly negotiating with Congress. He will have the progressive wing on the Democratic party pushing him further and further left while moderates will look for him to restrain the urge to pacify the loudest cries in Congress for reckless spending.
I really think Biden will utilize Executive Orders to really push forward his regulation agenda. Ultimately, a President Joe Biden is defined by what he is not—radical or revolutionary—and was seen by many Democrats as the candidate best suited to challenge President Trump in today’s deeply polarized political landscape.
Bottom line, Biden’s economic agenda is not as detailed as others and does not contain similar sweeping proposals. Biden’s tax hikes will truly harm the middle class despite his constant blathering that Trump’s tax cuts have done more harm than good. That simply isn’t true! It will be a sight to see how he tries to thread this needle. He will require more hand-holding, propping up, and mid-afternoon naps than any other president ever.
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