The Democratic candidate for the presidency of the United States, Joe Biden, has already outlined an economic platform where he intends to spin fine and appease the most progressive factions of his party while emulating some of the nationalist courses of his opponent, the current president, Donald Trump. In fact, the Republican himself accused his opponent of plagiarizing part of his proposals, although he insisted that Biden “cannot do the same because he is increasing taxes too much,” he argued last Friday.
As was evident a day earlier in Dunmore, Pennsylvania, the former vice president seeks the largest mobilization of public investment in supply, infrastructure, research and development since World War II. For this reason, it will choose to use fiscal policy to stimulate technological innovation, reduce dependence on other countries such as China, and “rebuild the middle class” with tax policies that also help small and medium-sized businesses, not just large ones. .
The bill, which will total up to $ 700 billion, combines investments in the national industry and research worth $ 300 billion and another $ 400 billion for the federal government to use taxpayers’ money to buy goods and products. homeland.
In this way, it seeks to shield the independence of foreign suppliers, create better paying jobs and have greater freedom for workers to join a union. The Democrat thus chooses to turn his back, as Trump already did, on the defeatist vision that automation and globalization outline as the forces that prevent the world’s largest economy from creating more jobs within the manufacturing sector. Biden’s plan aims to create more than five million jobs, as well as replace jobs destroyed by the pandemic.
“Throughout this crisis, Donald Trump has focused almost exclusively on the stock market, Dow and Nasdaq, not you, not your families. If I am lucky enough to be elected President, I will focus on working families, the middle-class families where I come from, “said the Democrat in his speech during a visit to a metallurgical factory. In it, he also reiterated that it is also time for large American companies to “pay their fair share of taxes.”
It is at this point that his tax plan comes into play, which already generates a certain unease among investors and entrepreneurs. The Democrat is heading to the White House, boosting a rise in corporate tax from the current 21% to 28%. It also wants to double the rate on income earned by foreign affiliates of US companies from 10.5% to 21%. “His proposals would generally expand corporate income tax by eliminating numerous deductions,” says Kyle Pomerleau, a fiscal policy analyst at the American Enterprise Institute.
From the Tax Foundation, another Washington-based think tank, they also emphasize how the Democrat will enact a series of tax policies that will raise income and payroll taxes on individuals with income over $ 400,000. This plan will reduce the size of the economy by 1.51% due to the highest marginal tax rates on labor and capital in the next decade, with a collection of approximately 3.8 billion dollars. Garrett Watson, an expert with the Tax Foundation, concludes that Biden’s measures “would generate lower after-tax income among all incomes, but especially for taxpayers in the top 1%.”
The calculations made by the Tax Policy Center largely coincide with the previous ones, projecting a federal revenue collection of $ 4 trillion until 2030 and the highest-income households experiencing a tax increase substantially greater than the rest of the tranches, both in dollars as in proportion to your income.
As the odds of a Democratic sweep in the elections grow, which not only put Biden in the White House but also put the party in control of both Houses of the Capitol, big businessmen and investors are starting to discount each time plus the possibility of a general tax increase on this side of the Atlantic.
According to an analysis by Goldman Sachs, Biden’s proposal to raise corporate tax from the current 21% to 28% would cut 2021 earnings from the S&P 500 by $ 20 a share to $ 150. BCA Research estimates that a complete repeal would reduce earnings per share by approximately 12%, but they indicate that part of this risk is already discounted in the market.
Polls suggest that Republicans risk losing multiple seats in the Senate that were previously considered safe. This is the case of Iowa, Georgia and Montana. Something that suggests there is a decent chance for Democrats, in control of the House of Representatives, to also win a simple majority in the Upper House. Of course, a supermajority of 60 seats is currently discarded.
“Democrats will most likely only partially reverse the corporate tax cuts by focusing more on closing some of the loopholes in the tax code,” said Peter Berezin, chief global strategist at BCA Research.
Berezin believes that even if taxation increases for companies, public spending is likely to increase further, resulting in a net increase in fiscal stimulus. Finally, a Biden presidency would create less trade tension with China and other traditional allies, which would be a relief to the market. Investors are also closely following the prospects for a tighter regulatory environment and an ambitious climate change agenda.