What The Biden Presidency Means For Our Economy
The results are finally in, and we can officially announce the victory of Joe Biden as the 46th President of the United States.
It wasn’t just cities around the world that erupted in celebration at the news of President-Elect Biden: the stock markets also rallied.
The Dow Jones Industrial Average climbed almost 1200 points, or 4.2%, in midday trading on Monday. The blue-chip index set its first intraday record since February and came within about 70 points of the 30,000 mark before paring some gains. The S&P 500 surged 2.9%, also putting it in record territory.
These historic rises were due also in part to the announcement of a COVID-19 vaccine by Pfizer and BioNTech.
In regards to the pandemic, Biden has vowed to invest billions of dollars towards the manufacturing and distribution of vaccines to everyone in the U.S. – for free.
Biden has also said he plans to work with local officials to mandate masks in public.
Rallies in both the stocks and the streets seem to set a positive tone for what a Biden administration could mean for the pandemic – and the economy.
However, the Senate will likely remain in Republican control, making it much harder for sweeping legislative changes to be passed.
Only time will tell how the runoff races in the Senate shake out, so today we will focus on how the Biden administration has said they will deal with a few key sectors of the economy.
Biden proposes keeping most of Trump’s 2017 cuts for individual taxpayers making below $400,000, but he has said he would seek to increase taxes on businesses and high-income households.
He proposed raising the corporate tax rate to 28% from the current 21%. Biden will also raise the minimum tax on foreign profits to 21%, up from 10.5%.
Biden has argued that Trump gave U.S. companies such a huge discount that they have incentives to operate abroad rather than in the U.S.
To combat this even further, Biden has said he will back tax incentives that encourage domestic manufacturing, such as his proposed 10% tax credit for certain investments in domestic production.
However, as we mentioned before, without full control of the House and Senate, it could prove difficult for Biden to make these proposed changes.
Tax policy must pass through Congress, and with Democrats having just lost some of their majority, big issues may face some stalemates.
While we are on the topic of tax incentives, we would be remiss not to mention Biden’s plans for the manufacturing sector.
Biden’s administration is expected to increase federal involvement and spending on programs to grow domestic manufacturing.
Executives and economists predict the Biden administration will be hesitant to pursue free-trade agreements and other policies that could jeopardize blue-collar jobs in Midwestern states.
Experts also expect Biden to revive federally funded institutes developed during the Obama administration for applied research in manufacturing and to push for “Buy American” requirements on federally funded projects, as well as other incentives for domestic manufacturing.
Many believe a Biden administration could mean an improved chance that an infrastructure spending bill will be proposed as part of an economic stimulus program.
Trade was a key issue in the election, and Biden will likely approach trade collaboratively by appealing to allies battered by Trump’s sanctions, rethinking the use of tariffs and working with other nations to create a united front to confront China.
Relations with China will be a huge issue for Biden to inherit. Currently, there are tariffs on about three-quarters of everything China sells to the U.S.
It is unclear if Biden will keep the current tariffs, reduce, or remove them. Similarly to Trump, Biden views the rise of Chinese tech companies as a grave threat to America.
It is important to note that Biden does not need Congressional approval to deal with outstanding trade issues. Simon Lester, a trade policy expert at the Cato Institute, stated, “The administration would want to keep Congress in the loop, but they have a lot of discretion to shift away from Trump’s policies.”
Biden will only need Congressional approval when it comes to free trade deals, but it seems pretty certain that Biden will choose to focus on domestic manufacturing, investment, and spending rather than explore foreign trade agreements.
Small business has obviously taken an extremely hard hit this past year due to coronavirus. Biden has time and time again maintained that aid for U.S. small businesses is a top priority.
He has called for changes in the Paycheck Protection Program, including strengthened oversight and a guarantee that every eligible business with 50 employees or fewer would get relief.
Biden’s platform also proposes expanding small businesses’ access to capital through a new fund that would receive $30 billion in initial federal funding and make investments, including directing $10 billion to state and local programs that provide venture capital.
There are also plans to give the Minority Business Development Agency, housed under the Commerce Department, $5 billion in annual lending and investment authority. Biden’s administration states that this will help improve federal contracting and other opportunities for minority-owned businesses.
Many businesses have relied on stimulus to stay afloat in these tough times, and getting a new stimulus bill passed is an ongoing struggle in the government.
There are a few things Biden could do without the approval of a Republican controlled Senate.
One such idea that has been floated is the forgiveness of student debt. Biden could direct the Education secretary to forgive student loans up to a certain amount (as much as $50,000 to $75,000 for low-income households).
This could strongly benefit workers from minority racial and ethnic groups while also boosting the economy by encouraging more spending.
The administration could also use executive authority to raise the minimum wage for federal contractors to $15 an hour.
These are just a few of the key sectors that drive America’s economy. We will have to wait and see how Senate runoffs turn out before we can get a clearer picture of how much change a Biden administration could make.
To a Richer Life,
The Rich Life Roadmap Team