Politics and Finance: Planning for Public Policy

The election season has concluded, and we find ourselves with a Democratic president and Democratic majorities in both houses of Congress. This change could have far-reaching effects on many aspects of our lives including a number of financial issues. What actually comes out of having the Democrats in control of these two branches of government, of course, remains to be seen.

Impact on the Economy and Investors

Some think that President Biden’s stimulus proposal will have a positive impact on the economy and on the stock market. Some experts point to these proposals as a factor in the strength of the stock market in January.

The Biden economic plan could have an impact on a number of industry sectors, one sector of note is the energy sector. We’ve already seen a shift from big tech stocks towards cyclicals and value stocks in anticipation of the Biden agenda.

One area of concern is the potential impact these stimulus plans might have on inflation and interest rates. The threat of inflation could put a damper on the economy as could the prospect of higher interest rates. Both of these issues would likely have a negative impact for investors.

Consumer Protection

Many think the Biden agenda will focus on consumer protections in sectors like banking, credit and others. He is thought to be considering a number of banking reforms, including tougher enforcement of fair-lending requirements. Overall, these types of protections, as well as others across different industry sectors, are largely a positive for consumers.

Climate Change and the Environment

Shortly after taking office, President Biden rejoined the Paris Agreement on climate change that the United States had withdrawn from under the Trump administration. Additionally, he signed three executive orders aimed at curbing climate change within his first week in office. He seems committed to restoring trust among other countries in the United States’ commitment toward combating the impacts of climate change.

Taxes

The Biden agenda contains a number of potential tax changes.

Higher Taxes for Wealthy Americans

He is looking to raise taxes on those earning $400,000 or more. This might include raising the top tax rate to its former 39.6% level from the current 37%. He is also said to be considering adding a Social Security tax for those earning $400,000 or more.

There has also been talk of eliminating the preferential rate for long-term capital gains for those earning $1 million or more. This would entail taxing those gains as ordinary income at rates as high as 39.6% versus the current top capital gains tax rate of 23.8%. Some think this might cause a temporary runup in stocks as wealthy investors scramble to sell appreciated securities in advance of these higher rates.

Tax Breaks for Families and the Middle Class

Biden’s tax plan would increase the child tax credit for 2021 and beyond if needed. The plan also includes a credit for childcare expenses for families. His plan would increase student loan forgiveness and would exclude the forgiven amounts from being taxed.

Overall, the Biden tax plan is aimed at increasing taxes on wealthier taxpayers and corporations, while providing relief to the middle class and those at lower income levels.

Stimulus and Relief Packages

President Biden has proposed providing an extra $1,400 in stimulus relief to individuals with incomes of $75,000 or less. This would be in addition to the $600 checks issued near the end of the Trump presidency. This proposal is currently under debate in Congress.

He has also proposed the extension of federal emergency unemployment benefits until September, they are currently scheduled to expire in March of this year. His proposal would increase the amount from $300 to $400 weekly.

Summary

In general, the Democrats led by President Biden are looking to increase taxes on the wealthy and on corporations, while providing tax breaks and stimulus payments for middle- and low-income taxpayers, as well as small businesses. Their agenda is also focused on combating climate change and consumer protections.

The biggest “wildcard” in all of this is the ability of the Biden administration to tackle the coronavirus. Can they get the population vaccinated in a timely fashion and help get things back to normal? This will go a long way in determining how quickly the economy recovers.

Connect with a Wedbush Advisor for answers to your questions about how these policies might impact your investments.

Disclosure

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.

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