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What Joe Biden’s Win Over Donald Trump Means For Your Money

The policies of the U.S. president-elect could shape the way millions of Americans save, spend and manage their finances for years.

When U.S. President-elect Joe Biden takes office in January, his to-do list will be long. He faces the daunting challenges of taming a pandemic that’s not yet under control and rebuilding an economy still reeling as millions of people remain unemployed.

There is a lot riding on his presidency. His proposed policies — from tax hikes to health-care changes — could shape the way millions of Americans save, spend and manage their finances for years.

President Donald Trump continues to dispute the results of last week’s election, and the prospects for Biden’s agenda remain uncertain because Republicans may retain control of the Senate. But at least for now, these are the ways a Biden presidency could affect your wallet:

Will Your Taxes Increase?

Biden has proposed a tax plan that would increase taxation, but his taxes target the wealthy. He has promised to enact a number of polices, including an income tax, a capital gains tax and payroll tax, the weight of which would fall on people making more than $400,000 a year.

Their tax rates would edge up to 39.6% from 37%. The Tax Foundation estimates that by 2021, if Biden’s tax plan were enacted, the top 1% of taxpayers would see their after-tax income reduce by 11.3% and the top 5% would see it shrink by 1.3%. Those in the 90th to 95th percentile would see their after-tax incomes reduced by 0.2%.

That doesn’t necessarily mean the middle class is in the clear. Biden’s tax plan would raise about $3.4 trillion over the course of 10 years. But the cost of his plans is estimated at $5.4 trillion, according to an analysis by The Wharton School at the University of Pennsylvania. Biden has yet to provide specifics on how he would finance the difference of almost $2 trillion. “I just don’t see another way that he can go, than to raise taxes on the middle class, because that’s where all the money is,” Andrew Silverman, a tax analyst for Bloomberg Intelligence, had said before the election.

A Big Promise on Jobs

The president-elect has indicated his plan to grow U.S. employment includes $400 billion for manufacturing and $300 billion for research and development, which he says could create 5 million jobs on top of those lost to the coronavirus outbreak.

He has not attached a timeframe to his plan, though he would face pressure to achieve it by the end of his first term. Biden has also vowed to raise the federal minimum wage to $15 per hour, while Trump argues that such a mandate would hurt small businesses.

What About the Stock Market?

Trump often touted a strong stock market before the pandemic. Business-friendly policies and less regulation helped boost the S&P 500 index roughly 60% since Trump won the 2016 election — even after the Covid-19 shock that sent stocks into the fastest bear market on record.

But that has been offset by Trump’s trade war and tariffs on imports. Such levies have often meant that consumers had to pay more for goods. In fact, they cost the typical U.S. household approximately $831, according to research by the New York Federal Reserve. Moody’s Analytics estimated that the trade war with China also cost the U.S. about 300,000 jobs and that if the duties remain in place, more jobs could be lost.

What’s more, the vast majority of Americans have not benefitted from rising stock prices. Federal Reserve data show that only about 53% of families held stock positions in 2019, while the top 10% of Americans, who hold more than 88% of those shares, reaped the benefits. Since 2002, upper-middle class Americans have seen a 10 percentage-point decline in their equity interest in companies.

Stock Market Returns

Biden has called for taxing capital gains and dividends at an ordinary income tax rate of 39.6% for those making more than $1 million. If Biden’s plans get the green light from Congress, they may weigh on your stocks, according to Goldman Sachs Group Inc. Still, experts see global trade tensions easing under Biden, and expect more conventional politicking from him, which could bring stability to markets. 

The key for long-term investors is to remain invested, no matter which political party is in office, according to Liz Ann Sonders, chief investment strategist at Charles Schwab. If someone invested $10,000 in the Dow Jones Industrial Average starting in 1900, but only when Republicans were president, that portfolio would now be worth $99,000. If that same person only invested when Democrats were president, that $10,000 would be worth $430,000. However, if that investor had stayed in the market the entire time, the portfolio would’ve grown to more than $4.2 million, according to Sonders.

The Cost of Health Care

Biden has said his goal as president would be to ensure that no American buying insurance in the individual marketplace pays more than 8.5% of their annual income on health care. That could save people hundreds of dollars a month, but it could also damage the employer-sponsored health insurance market. Biden has proposed a public option for those who can’t afford private coverage and would lower the Medicare eligibility age to 60 from 65. 

How Will Biden Handle Student Loans?

The next U.S. president supports student loan forgiveness and has proposed a plan to make two- and four-year public colleges free for families that earn less than $125,000. He also supports canceling federal student debt for students from undergraduate universities and from private historically Black colleges and universities for the same income bracket.

Plans for Social Security

Biden has proposed expanding Social Security for people over the age of 78, for people with low income and for widows and widowers. He plans on paying for this by increasing payroll taxes on individuals with incomes above $400,000. Yet if Congress is divided, that probably means Biden’s plans would fall through.

Where Congress Comes Into Play

One of the realities of a presidential system is that the executive cannot enact policy alone. Much will depend on the makeup of Congress. Biden’s plans could end up a pipe dream if the Democrats don’t take the Senate.

Currently they face long odds: Two decisive Senate seats are up for grabs in historically red Georgia because both Republican candidates failed to secure the majority of votes they needed on election day. Democrats would need both seats to get to 50 in the Senate, which would give them control by virtue of Kamala Harris as vice president having the tie-breaking vote.

If Democrats do gain full control of Congress, they would likely support Biden’s plans for higher taxes on corporate profits and capital gains. So, too, would they support some form of student-debt relief, especially for lower income earners. A Democratic Congress would likely also be supportive of Biden’s plans to increase Social Security benefits. 

If Republicans keep the Senate, Biden may find it harder to move forward with his plan to tax the wealthy and corporations. But his administration could still impose increased regulation through executive orders across several industries, including health care, fossil fuels and Big Tech.

Source: Bloomberg

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