On Saturday, the Associated Press and major TV networks called the presidential race and declared Joe Biden as the winner. Joe Biden has won 290 electoral votes and leads in Georgia, which can add additional 16 votes to his arsenal.
Despite the race being called, it seems that for the President Trump it isn’t over yet. Seeing and reading his personal and campaign’s tweets and comments, there is a chance of some lawsuits and a potential vote recount in some states. I don’t believe that this will change anything and thus, also “declare” Joe Biden as the 46th president of the USA. Given that, I’d like to briefly summarize Joe Biden’s economic plan key points and what we can expect going forward.
Infrastructure & Manufacture
The quintessence of the Biden’s program is to stimulate the economy and add 11 million+ jobs by increasing government spending and investments. Biden’s proposal is to spend $7.3 trillion on infrastructure and rebuild roads, bridges, and highways; build a clean energy economy; invest in research and development to bolster manufacturing and ensure the government and its contractors buy American products.
If his program gets support in Congress, it will indeed generate millions of jobs, will increase the productivity and as a result will boost the economy and recovery from the COVID-19 hit. The big question is whether it will pass Congress in its current state? As of this Saturday evening, Democrats have a lead in the House and a tie with Republicans in the Senate. Even if Democrats take over the Senate, Republicans can still block major legislation with 40 votes. This will undoubtedly lead to compromises and arrangements with Republicans and potentially significant cuts in the program spending. I see this development as the biggest risk because a Republican Senate could slow down the economic growth to about an average 3.5% per year vs. 3.8% a year with a Democratic Senate.
Infrastructure improvement is a frequent promise among many politicians. During his 2016 campaign, President Trump promised a massive rebuild of America. Millions of Americans, especially here in Midwest, casted their votes for a Republican for the first time in their lives in exchange for better infrastructure. Although Trump did deliver on many promises that he made, the infrastructure promise remained unfilled. (In my opinion, failure to deliver on this promise resulted in an overwhelming defeat in Wisconsin and Michigan). Biden saw this opening and capitalized on that.
The problem with infrastructure projects is that they are awfully expensive and time-consuming. If the government wants to get private financing, it needs to incentives private investors which isn’t always easy to do. Borrowing money is often an alternative route to go. But this pandemic has already had a terribly negative impact on the state of government finances. The federal budget deficit hit an all-time high of $3.1 trillion with the public debt hovering around $26.95 trillion (about 120% of the GDP). The pandemic has stretched the government spending (especially of the local ones) to dangerous levels with significant reduction in revenue. With the pandemic worsening and new cases and deaths rising almost every single week, constraints on borrowing will remain in place. So how is the new president going to deliver on its infrastructure improvement promises? Partially by raising taxes.
President Trump passed the Tax Cuts and Jobs Act in December 2017 which lowered taxes. Trump’s bet was, in my opinion, that people would appreciate this move more than any other. The problem was that the tax reduction wasn’t as significant as it was promised. Many Americans actually saw their tax bills go up. What made things even worse is that the bill helped millionaires and billionaires – for whom paying taxes isn’t a problem at all – to pay less in taxes.
Biden saw this as another opportunity and played it differently and smarter. How? How he said that he was going to raise taxes and eliminate loopholes for individuals making $400,000 or more a year. Under his administration, incomes above $400,000 will be subject to the 12.4% Social Security payroll tax and itemized deductions at incomes of $400,000 will be phased out. Essentially, Biden is aimed at taxing more millionaires and billionaires while leaving regular folks immune to new taxes. The top income tax bracket is expected to go up back to 39.6% and there is a chance we may lose a stepped-up basis loophole.
He also wants to increase the corporate tax rate from 21% to 28%, and tax capital gains and dividends at ordinary tax rates for incomes above $1,000,000. If Biden’s proposal passes Congress, I believe that new taxes will have a negative impact on corporate profits, new investments, and eventually partly fall on workers in the form of lower pay – which can slow down the economic growth. When this happens, we will most likely see another round of selloff in the stock market. However, I don’t see this happening very soon – the new president will wait with tax increases until the economy is strong and on the path to recovery. And if Republicans hold the Senate majority, we may not even see any changes at all.
Another tax proposal is to introduce a 26% refundable tax credit and eliminate deductible traditional contributions for workplace retirement plans, IRAs, and other types of retirement vehicles. In its current state, this proposal would reduce the tax benefit of traditional retirement accounts for those earning above $80,250 year.
Biden is on the same page with Democrats and supports the raise of minimum wage from $7.25 to $15. The question remains the same: are Republicans going to let them do it?
China will remain a focal point of the new administration. $360 billion in tariffs imposed by Trump will remain in place for now. But going forward, Biden plans to remove some tariffs and instead unite with U.S. allies to confront China. The idea would be to bolster consumer spending by making Chinese goods cheaper for American.
Biden will be rolling back on many Trump’s rules and regulations and tightening them. He is for clean energy and believes in climate change. Many environmental rules for power and auto industries are expected to be changed. Tightening regulation discourages investing, innovation, and hiring – and this may have a negative effect on the stock market.
Assistance & Support for Individuals
Among measures aimed at regular folks Biden’s program will provide tuition-free community college, ensure access to affordable childcare and universal preschool. The plan is to immediately cancel a minimum of $10,000 of student debt per person. In addition to that, Biden wants to forgive all undergraduate tuition-related federal student debt of those who make up to $125,000 and attended two- and four-year public colleges and universities, historically black colleges and universities and underfunded minority-serving institutions.
Biden also wants to modify the personal bankruptcy laws and make student loans dischargeable. It will make the process of filing for bankruptcy easier and cheaper.
Biden wants to make it easier for Americans to buy a home and plans to introduce a $15,000 tax credit to help offset closing costs. In addition to that, Biden plans to increase funding for Section 8 housing vouchers. When it comes to renters, Biden plans to help tenants facing evictions by providing legal assistance.
As someone who was an integral builder of the Affordable Care Act, Biden wants not only to protect the Affordable Care Act but build and expand on it. His plan is to have 97% of Americans insured. The cost of this promise is $750 billion over 10 years. Furthermore, Biden hasn’t supported Medicare-For-All proposal and instead plans to introduce a public health insurance option to health insurance marketplaces. With the new public health option the idea is to increase competition and lower insurance premiums among private insurers. Finally, Biden plans to lower the Medicare eligibility age from 65 to 60.
COVID-19 Stimulus Package
Biden is for another economic relief that will include an additional federal subsidy to weekly unemployment benefits, assistance to struggling small businesses, and another round of stimulus checks to households. The biggest uncertainty is who will control the Senate. As we know, the Democratic House passed $2.2 trillion stimulus last month while the Republican Senate counteroffered with a $500 billion plan. I think it is safe to assume the stimulus is coming (and perhaps later this year) but until we know who controls the Senate the exact size of the aid is a pure speculation.
The nature of any election candidate is to give promises and outline how he or she will make our lives better. Based on these promises we choose and cast our votes, and there is nothing wrong with it. If someone doesn’t deliver on its promises the price he or she pays is extremely high – loss of trust. The 2020 presidential election wasn’t easy by all means – the country was divided, the economy was hit by the COVID-19 pandemic, people were losing their jobs or being furloughed… The list easily can go on. But Americans made their choice, and whether your candidate won or lost there is no need to be angry or disappointed. Instead, we, as citizens and humans, must unite and do whatever we can on a personal level to help the new president succeed and make our lives and society better.