The effect of government policies, regulations and laws on Americans is pervasive. With the upcoming presidential election, there is opportunity for change or more of the same. On November 3rd this year we will elect our president but also many Representatives and Senators who will make new laws, including those involving new spending and taxes. Let’s take a look at what a Biden or Trump presidency might look like.
Trump: More of the same
In 2016 President Trump ran on a platform of deregulation, lower taxes and “America First”. The tax reform act passed in 2017 reflected a major achievement for Republicans by lowering income tax rates for millions of Americans. The act also cut corporate tax rates from 35% to 21%. While the corporate tax rate was made permanent, personal income tax rate cuts are temporary. Unless Congress acts, the top personal income tax rate is scheduled to return to 39.6% in 2026, up from 37%. If re-elected Trump would like to make the current lower income tax rates permanent. He would also like to cut payroll taxes which are paid by both workers and employers.
Biden: Higher taxes on the rich and corporations
Vice President Biden would like to increase taxes on high income individuals/families and corporations, expand health care, spend on infrastructure and has proposed a $1 trillion investment to combat climate change. He has proposed raising personal income tax rates on those with income of about $400,000 and above. He has also proposed applying Social Security taxes to incomes over $400,000 (currently this tax only applies to the first $137,700 of earnings). He would also like to tax capital gains at the same rates as ordinary income. For many this could mean a tax increase beginning in 2021. For inheritances, he would also like to eliminate the step up in cost basis at death.
Keeping it all in perspective: What will really get done?
Keep in mind that these are the platforms (also known as wish lists) for each candidate and their respective parties. In order to make these changes they will need support from a majority in the House of Representatives and the Senate in order to make these changes. For Trump, given the current outlook for down-ballot elections, it looks like it would be difficult to achieve the majorities that would be required to implement his proposals. For Biden, the election outcome looks likely to favor Democrats which might provide enough votes to achieve some of his proposals.
What does the stock market think of a Biden presidency?
As of this writing, the stock market—which is a forward-looking indicator—seems to believe that a second major round of economic stimulus could outweigh the negatives of Biden’s proposed tax increases. Currently Speaker Pelosi and Secretary Menuchin are still negotiating a possible second round of stimulus in the range of $1.8-2.2 trillion (that’s on top of the $3 trillion already provided earlier this year). While this package may not get passed in 2020, we believe that some form of additional stimulus will be passed by early 2021. We think this will help many Americans and keep the slowing economy moving.
In the meantime, we’ll just have to see how the election turns out. November 3rd will probably be a very long night!
If you have additional questions about the election and how it might affect your investment plan, give us a call. We’re here to help.
Lyman H. Jackson
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.