Biden's impact on the stock market — increased taxes and more economic stimulus - The Average Joe

Biden’s impact on the stock market — increased taxes and more economic stimulus

November 17, 2020

The fate of the stock markets rests on one last election outcome — a vote on Jan. 5 for Perdue’s Senate seat in Georgia, which decides the party that controls the upper chamber.

Why does this matter?

Any US federal laws or legislations must be approved by two groups — the House of Representatives and the Senate, before reaching the president for approval.

Democrats are expected to control the House but Senate control will be decided in January. If Democrats take control of the Senate, it’ll be much easier for Biden to push through his agenda.

Otherwise, a Republican senate could oppose and challenge Biden’s planned policies.

What does this mean for the markets?

Democratic control of both the House and Senate could be both good and bad for stocks — by making it easier for Biden to pass the following proposals:

  • Increasing corporate tax to 28% from 21% which will lower corporate profits — an immediate negative impact on stocks.
  • New economic stimulus could benefit the overall market by putting more money into the hands of consumers and small businesses.

However, if Republicans were to control the Senate, it’ll make it much harder for these bills to pass.

Will the Democrats control the Senate? According to Financial Times, political analysts and investors see a slim chance of Democrats winning control of the Senate.

If Republicans gain control of the Senate, you’ll either see a toned-down version of the proposals above or none at all.

For investors… Are your taxes going up?

For US citizens, unless you have a second home in the Hamptons, there’s no need to worry:

  • For those making above $400,000, Biden wants to increase the income tax rate back to 39.6%.
  • For those making above $1m, Biden wants to increase the capital gains tax, the tax paid on your investment profits, to 39.6%.

According to the Tax Policy Center, the top 1% of households will see their after-tax income drop by 16% in 2022 if Biden can successfully raise taxes.

However, raising taxes on corporations has an indirect impact on households — potentially lowering income. Corporations affected by higher taxes will have less incentive to increase wages or worse, respond by lowering salaries or laying off staff.