After the tumultuous events of last week, as of January 20th, we have Democrat control of the White House, the House, and the Senate. What will that sweep by the Democratic Party mean for your personal finances?
After the runoff elections in Georgia, the Democrats and Republicans will now each have 50 votes in the Senate. The even split would give Democratic Vice President Kamala Harris the tie-breaking vote on some bills. This means that Biden and the Democrats could pursue much of their progressive agenda. This will impact the economy at large and your wallet.
One thing that the incoming Biden administration will surely mean for many Americans is higher taxes. While campaigning for the White House, Biden vowed to increase income taxes, capital gains taxes, and payroll taxes for people making more than $400,000 a year, as well as for corporations. He promised to repeal Trump’s 2017 Tax Cuts and Jobs Act. This might affect middle-income earners who saw some benefits from that bill.
On the other hand, Biden also promised that he would make it a priority to get another round of COVID-19 relief passed. He says this time it will include $2000 stimulus checks. The fastest way for Democrats to pass $2,000 stimulus checks would be to bring the bill to the Senate floor for a vote. This is something that Republican Majority Leader Mitch McConnell blocked in December. However, McConnell will no longer be Majority Leader. The bill would still need support from 60 Senators in order to bypass a filibuster. However, some Republicans have already publicly signaled they would be on board. Those $2000 checks for struggling Americans could be a lot closer to reality.
Despite the tie-breaking, technical majority in the Senate, Biden’s tax agenda may be a little harder to pass. While some Republicans might back a $2,000 stimulus check, they are more likely to back tax cuts — not hikes. Tax hikes have always been against the Republican platform.
What does this mean for the wealthy?
Biden’s proposed changes would raise tax rates on those making over $400,000 to 39.6% from 37%. The non-patisan Tax Foundation estimates that by 2021, if the plan were enacted, the top 1% of taxpayers would see their after-tax income reduced by 11.3%, and the top 5% would see it shrink by 1.3%. Those in the 90th to 95th percentile would see their after-tax incomes reduced by 0.2%.
The president-elect has called for taxing capital gains and dividends at an ordinary income tax rate of 39.6% for those making more than $1 million.
Biden’s economic agenda will also include a raise in the minimum wage, possible student loan forgiveness, and modifications to Obamacare. These could – in theory – reduce healthcare premiums. All of these will affect your personal finances to some degree.
After a very divisive four years, we will have to watch the first 100 days of the Biden administration and Democrat control very closely before we can assess the long-term positive or negative implications for your personal finances.