Election season is upon us. Voting this year is certainly much different than usual. The entire process is taking place against the backdrop of a global pandemic. Millions are participating in early voting, and we may not know the final results from the election until days or weeks after election day. But one thing has not changed in 2020: the outcome of the election could impact your finances.
Now, this is not meant to be an opinion-based post. We are not taking a stance on any issues, nor are we saying that a particular candidate’s platform is better or worse for the economy than the other platform. Instead, we will highlight a few key areas that can make a difference for your personal finances as a result of the election. These are some considerations you may want to keep in mind as you think about how you’ll manage your finances in the years ahead.
The COVID-19 crisis led to widespread unemployment, reminiscent of the Great Recession, as some industries were hit incredibly hard by the shutdown and social distancing requirements. Many of those jobs have come back, though no one would say we are yet at a full recovery. Each candidate has a plan for continuing job growth into the future.
Source: Congressional Research Service, Unemployment Rates During the COVID-19 Pandemic: In Brief.
President Trump has taken the approach of stimulating job creation by decreasing costs and regulations for businesses. The Tax Cuts and Jobs Act of 2017 (TCJA) did this by significantly reducing the corporate tax rate. He has also been a proponent of reducing payroll taxes. These approaches would likely continue in a second term.
In 2016, Trump first made mention of a $1 trillion infrastructure plan. While this plan has not been formally released, many speculate that such a plan would be part of his next term. This should create jobs associated with many infrastructure projects, such as updating roads, bridges, railways, etc.
President Trump’s formal agenda claims his administration will create 10 million new jobs in 10 months. It also states the goal of creating 1 million new small businesses and bringing “back 1 million manufacturing jobs from China.”
Former Vice President Joe Biden ties his pitch on jobs to the pandemic. His jobs plan begins with a focus on public health, saying “[w]e can’t solve the jobs crisis until we solve the public health crisis.” His plan calls for creating jobs that specifically help in the fight against the pandemic, as part of a Public Health Job Corps.
From there, Biden focuses on manufacturing, energy, and infrastructure. Biden’s plan has a stated goal of creating “millions of good-paying union jobs.”
Stock Market and Retirement Savings
For many, the stock market is seen as an indicator of overall financial well-being for the country. When stocks are up, things seem to be going better for the economy overall. When they’re down, that downturn ripples throughout the economy. Many economists disagree with this reasoning altogether, insisting that “the stock market is not the economy.” Regardless, COVID-19 hit the stock market hard initially, but it has largely bounced back.
The lingering question is this: How will the stock market react to the presidential election?
This is a very complicated question. One line of reasoning is that democratic policy is less favorable to businesses, which means that the stock market would go down if Joe Biden is elected. If Trump wins, some of the same principles underlying his approach to job growth (less regulation and taxes) could play a role in creating stock market growth. Others argue that the markets have already priced in the possibility that Biden wins, meaning markets should not drop just because he is elected.
Any future stimulus in response to COVID-19 may also play a role. A stimulus package should support the stock market. It remains unclear whether a deal will get done by the time a new president might take office, or whether such a deal would come later in 2021.
The stock market impacts retirement savings, which is one reason why the long-term outlook for the market matters to so many people. Another element of saving for retirement is that it is incentivized—taxpayers receive tax breaks for contributing to eligible plans, like 401(k)s. There has been some confusion about a proposal made by Joe Biden to treat 401(k) accounts differently in the future.
Biden’s plan does not call for 401(k) accounts to be taxed (as some have claimed), but instead he is proposing to “[equalize] the tax benefits of retirement plans.” He has proposed a 26 percent credit for contributions as a replacement to the current deduction. According to the Tax Foundation, this would “provide a larger benefit to lower-income earners and reduce the benefit to higher-income earners.”
Income and Taxes
Taxes, and their effects on income, are always one of the hot button issues in an election. This time is no exception. The differing political worldviews of President Trump and former Vice President Biden are readily apparent when considering their tax proposals.
Donald Trump has already passed major tax legislation, via the 2017 Tax Cuts and Jobs Act. He vows to cut taxes further in a few ways. Many of his tax proposals provide incentives to businesses. Some argue that if businesses take advantage of these tax cuts, it would allow them to increase wages to workers.
President Trump is also proposing tax cuts directly aimed at individuals. First, he has floated the idea of “middle class tax cuts.” As the Tax Foundation explains, structuring such cuts will be difficult in order to ensure that those with zero or minimal tax liability can benefit. Some speculate that such a plan could involve drastic reductions in certain marginal tax brackets.
One of Trump’s other ideas has already been put into action in a limited context. The President has spoken often about cutting payroll taxes. He created a payroll tax deferral that runs through the end of this year. However, that program, at least for now, requires that employees repay the deferred taxes next year. Still, this may be an indicator of changes to payroll taxes in the future, should Trump be reelected. A decrease in employee-side payroll tax effectively increases take-home pay.
Trump has also proposed reducing the capital gains tax, which could help individuals who actively invest or who realize long-term profits on stocks and real estate.
Joe Biden’s tax plan has a few major highlights. First, he has promised that income taxes will not increase for Americans making $400,000 or less. However, those making more than this amount will see higher tax rates under a Biden administration. Much of his plan centers around the idea that the wealthiest Americans should pay more in taxes. As Biden describes it, his plan “rewards work” rather than wealth.
Along these lines, Biden plans to significantly increase the tax on capital gains. He also proposes increasing corporate taxes and payroll taxes. These plans run directly counter to President Trump’s plans. Biden’s proposals on this front may have an effect of redistributing wealth and creating a more equal playing field. However, there are concerns that these increased costs could cause corporations to reduce their workforce, thus reducing or eliminating income for some workers.
Joe Biden is also in favor of increasing the national minimum wage to $15, something President Trump has said he would rather leave up to the states.
Vote and Plan
We have not covered every issue in this presidential election that could impact your finances. Healthcare and education, for example, are two topics we didn’t dive into here. However, we did cover a few basic and essential financial categories that are up for grabs on the ballot this year.
These proposed policies may or may not affect how you vote, but hopefully you will exercise your right to vote in the upcoming election. After the election, keep track of these policies and be mindful of the impacts they may have on you. Think ahead to what steps you may be able to take in order to best prepare for upcoming changes. That does not mean you should rush to take action, but instead that you should keep an eye on developments as they come and be ready to make careful planning and adjustments as needed.
As always, if you want help with your budget or credit goals, be sure to contact our credit counselors for free help now.