• There is little to argue that mitigates the impact of these tax provisions other than to note that some of the Trump administration’s goals in lowering business taxes were negated by other policies. Business investment was supposed to improve under a lower-tax regime, but trade uncertainty actually led to deteriorating business investment, even pre-COVID. Without additional business investment, the positive tax impact on long-term business and economic growth was marginal, at least in the initial few years of the cuts.
• A reduction in tariffs, which are a tax on American businesses for purchases of foreign goods, may provide a modest offset for tax increases. A Biden administration probably would be unlikely to make significant changes to tariff policy toward China, but tariffs on goods from major developed market trading partners would likely be reduced.
Personal taxes:
• From a market perspective, the major concern is an increase in capital gains taxes, which potentially could lead to some selling before the higher rate goes into effect. Biden is unlikely to be able to pass such a provision without a Democratic sweep, and even a narrow majority in the Senate may not be enough. If sold positions are reinvested in stocks, the net effect may be negligible, and for some investors, deferring taxes, even at a higher future rate, may be more desirable than recognizing gains immediately.
What To Expect From A Biden Presidency-Regulation
• Deregulation has been a clear priority for the Trump administration, with a particular impact on the financials and energy sectors. However, that impact has not been reflected in relative sector performance in the S&P 500. That doesn’t mean deregulation wasn’t economically supportive—only that the policy impact was small compared to broader economic forces.
• Deregulation has tended to be more damaging for small businesses than the large publicly traded companies that make up major stock indexes. In fact, large companies sometimes benefit from regulations at the expense of small companies because of their ability to scale their regulatory response. Even if it doesn’t impact stock prices, small business are the soul of the US economy, and overregulation weighs on their potential to thrive.
• There have also been some areas where the Trump administration has created implicit regulatory costs that would be unwound under a Biden administration.
— Immigration policy has reduced labor flexibility for businesses and has also reduced the available labor pool, especially for specialized skills. Adjusting to new policies also can come at a high administrative cost.
— Trade policy has caused large supply chain disruptions at high cost to many businesses, large and small. While this impact cannot be reversed, the effect moving forward may be more manageable under a Biden administration.
The following sectors and industries may be particularly vulnerable to the regulatory impact of a Biden administration:
— Financials. Regulation may likely tighten if there’s a Democratic sweep, and even if not, progressive Democrats may fill key regulatory posts. Massachusetts Senator Elizabeth Warren may see increased influence, but the former presidential candidate is unlikely to receive a cabinet appointment, since Massachusetts’ Republican governor probably would appoint a Republican senator to replace her until a special election could be held.
— Energy. Oil and gas companies may be hurt by a potential Democratic sweep, and there’s a lot that Biden potentially could do independent of Congress. A shift in the treatment of Iran may also increase supply, thus lowering prices. On the other hand, alternative energy is likely to be a priority for a Biden administration.
— Healthcare. Healthcare receives a lot of attention but is likely a push. Biden was an opponent of “Medicare for All,” and the most likely policy implication may be an update or potential expansion of the Affordable Care Act (ACA). Drug pricing may continue to be a risk under either party. Healthcare providers may benefit from broader coverage.