Election 2020: Biden's Policy InitiativesSubmitted by Kaizen Financial Advisors, LLC on December 4th, 2020
Several major newsgroups have projected Joe Biden as the president-elect —and Congress appears divided with Democrats in control of the House and likely Republican control of the Senate—it’s a good time to review potential legislation in the years to come. We should point out that two major races take place in January for the two Senate seats in the state of Georgia. The results of which could prove material to the direction of future legislation as the current balance of power in the Senate is 48 Democrat, 50 Republican, with the Vice President providing the tie-breaking vote if necessary.
One key item to remember is that any change will follow a process, which would allow some time to evaluate the economic impact. This likely allows for calculated responses, if prudent, and not knee-jerk reactions. It should also be noted that the lack of a “Blue wave” in the recent elections greatly diminishes the likelihood of sweeping changes. Let’s take a look at a couple of examples:
Repealing the 2017 Tax Cuts and Jobs Act (TCJA). This type of legislation would need the approval of the House of Representatives and 51 Senate votes.1 Most experts believe that the act will not be repealed in its entirety, but more selective changes are anticipated. Some areas that could get sufficient support include raising income taxes on the top 1% of wage earners. Accelerating the sunset provisions associated with the TCJA could also be on the table.
This would reduce the time before tax rates on all income levels revert to pre-TCJA levels. There also seems to be support for tax breaks aimed at those hardest hits by the economic downturn. Lastly, we could see an increase in the corporate tax rate from 21% to 28%.
Increasing capital gains taxes. Legislation of this nature also would need the approval of the House of Representatives and 51 Senate votes.1 Biden’s proposal to increase the capital gains tax on high-income earners appears to have less support. As proposed, this would only impact those with incomes of more than $1M. Biden’s proposal to eliminate the “step-up” in basis of inherited assets currently appears to have little support. This is where capital gains are eliminated when assets transfer to beneficiaries and the tax basis is “stepped-up” to the current value.
Providing additional fiscal stimulus. For this type of measure, the legislation would need to move through the House and get 60 Senate votes.1 The size of an expected COVID stimulus bill has come down considerably since the House first passed the HEROs Act several months ago. Currently, the House and Senate still need to agree on the size and scope of the bill, but it seems to be heading towards the range of $500B to $900B. Both parties agree on the need for a bill, and most anticipate an agreement will be reached sometime in December.
Evaluate China tariffs, other tariffs. The president can use his executive authority to move these concepts forward.1 It appears that Biden will not immediately cancel the trade deals that Trump negotiated, nor will he remove the existing tariffs that have been put in place. Most analysts predict that Biden will focus on domestic economic stimulus first and then evaluate China's trade with a biased toward protecting American interests and limiting China’s “abusive practices.”
Right now, it’s uncertain what proposals will be taken up. Many items were discussed during the campaign, but what initiatives will take priority may become clearer in the weeks and months ahead. The Georgia Senate races may also help shape the direction of future policymaking.
If you are concerned about or would like to discuss one or more of these policies, please contact your Kaizen Advisor. We are happy to provide some guidance during this time.
Barrons, “Joe Biden Wants to Change Tax Policy, Here is What he Might Accomplish”, Nov 30, 2020
1. WStreet.com, November 4, 2020