For every presidential election that results in a new occupant in the White House come January, there is much speculation and some trepidation as to what changes the new administration will implement. The economic philosophies of Donald Trump and Joe Biden are certainly far apart, and this is reflected in the tax plan on which Biden campaigned. However, campaign rhetoric, the proposals made once in office and what actually can be accomplished are seldom the same.
According to an analysis from the Tax Foundation, some of the major proposals likely to be made by the new president include:
- A 12.4% social security tax, to be equally split between employer and wage earner, for those earning above $400,000
- Raise top individual income tax rate from 37% to 39.6% for earners above $400,000
- Tax long-term capital gains as ordinary income at 39.6% for earners above $1 million
- Increase corporate income tax rate to 28% from 21%
- Create a minimum 15% tax rate on corporations with a book profit of $100 million
The plan’s proposals to raise taxes on high-income individuals and corporations (approximately $3.1 billion) are in contrast to lower taxes for moderate and low-income earners ($1 billion.)
The cumulative effect these measures in conjunction with others in the Biden plan would have on economic output as measured by the GDP, incomes as measured by the GNP, tax revenue and jobs are much in debate.
Control of the Senate
The Georgia runoffs will determine control of the Senate and consequently how much, if any, of the Biden plan that will be implemented. The conventional wisdom suggests if Republicans hold one or both seats, no part of Biden’s plan will be implemented, but if it’s a blue sweep, radical changes are coming. It may not be that simple. Even with a Republican Senate, there may be room for some agreement on revenue-neutral compromises.
While many investors might be more comfortable with a divided government, implementation of Biden’s tax plan may not necessarily lead to a massive sell-off, as many fear. Many factors influence the market rather than reaction to a single policy on taxation. Interest rates and economic growth are traditionally important concerns and the corona virus and a stimulus package are current issues.
Every market and economic condition has investment opportunities. Contact us to review your portfolio and we’ll help you determine if you’re on the right path to meet your specific investment goals.
The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice.