- Joe Biden Wants to Change 401(k) Plans - November 23, 2020
- Let’s Go Exploring! Boston - November 20, 2020
- How Does a Joe Biden Presidency Affect the FIRE Community? - November 8, 2020
The Trump era is now at an end.
Despite a once-in-a-generation pandemic, blatant attempts at voter suppression, and unfounded claims of voter fraud, the US pulled off not just a free and fair election, but an election with the highest turnout ever in recorded history. And as of today, every news network (including Fox News) has projected that Joe Biden will be the 46th president of the United States.
But, as with everything 2020-related, there’s always the chance that things go sideways. It ain’t over ’til the fat lady sings, or in this case, until Trump’s army of Republican lawyers have exhausted every possible legal avenue for having the results overturned.
That being said, Trump’s strategy of using the courts to steal the election really hasn’t worked out that well. Tweeting in all-caps “STOP THE COUNT!” the day after Election Day didn’t really do anything for some reason. His team filed a lawsuit in Pennsylvania to throw out ballots that were submitted, had issues, and then were corrected, affecting a grand total of 93 ballots. In Georgia, another lawsuit affecting the validity of 53 ballots got thrown out of court. An attempt to invalidate 127,000 ballots submitted via drive-through voting centres in Texas also failed.
So far, all these attempts to find instances of voter fraud have come up empty. Actually, that’s not completely true. They did find an instance of voter fraud in Pennsylvania…from a Trump supporter. Apparently, a man in Luzerne county forged his dead mother’s signature to request an absentee ballot so he could cast an extra vote for Trump. But thanks to the Republican party’s hyper-vigilance on mail-in ballot fraud, he got caught, arrested, and is now facing up to 10 years in jail. So, good job Trump! You totally found the voter fraud!
So now that we know that the next president will be Joe Biden, my head always goes to one place: How does this affect our readers? How does a Joe Biden presidency affect those trying to get to Financial Independence, and how does it affect those of us who have already hit FIRE? Let’s dive in to find out!
Taxes Will Be Going Up On High Income Earners
It may come as a surprise to you, but unlike Trump, Joe Biden actually had a platform going into this election. I know, so weird and quaint, right?
So first of all, let’s take a look at his taxation plan.
Trump’s tax plan was to basically cut taxes for wealthy people and corporations. I have to admit: I personally benefitted quite a bit from that policy. As corporate taxes go down, coporate profitibility goes up, which causes stock markets to rise, and therefore my retirement portfolio to rise as well. As a retired person with most of their wealth invested in the stock market, I am very much a beneficiary of the Trump administration.
Those days are coming to an end. Biden has pledged to eliminate the Trump corporate tax cuts. But with the US deficit the way it is, he can’t afford to eliminate a tax without increasing taxes somewhere else, and where he’s planning on increasing taxes is on high earners.
High earners, by the way, refers to those earning more than $400k a year. This is kind of an odd line to draw, but he appears to be taking aim at the top two federal tax brackets of 35% for singles earning $207k to $518k, and 37% for singles earning $518k+. Maybe he’ll carve out a new bracket at the $400k level, but he’s pledged to increase the top tax bracket to 39.6%. How exactly he does that will become more clear over time, but suffice it to say that if you’re in these two top tax brackets, you’ll likely pay more taxes.
Also, he’s planning on making changes to the tax rates people pay on investment income, specifically long term capital gains and qualified dividends. To FIRE people who hear that and instinctivey panic, relax. The changes he’s proposing only affect people earning over $1M total. The exact text in his platform is “Asking those making more than $1 million to pay the same rate on investment income that they do on their wages,” so it sounds like he’s planning on leaving the long term capital gains and dividends rates unchanged below that threshold.
So for the most part, a Biden presidency doesn’t seem to affect rank-and-file members of the FIRE community too much. Which is good.
However, there is one change that will affect the FIRE community, which are his proposed changes to 401K’s. The details require more research on my part, though, and I will cover them in next week’s article, so stay tuned!
Health Care Will Be Expanded
But with Biden’s election, there is hope for progress. Joe Biden was instrumental in the creation of the Affordable Care Act, famously remarking to Obama (and his hot mike) that it was a “big fucking deal.” It was. And still is.
So I’m sure both him and Obama weren’t having a good time watching Trump get into the Oval Office and repeatedly take a claw hammer to their signature achievement. Trump tried again and again to kill Obamacare, only to have it saved from destruction by the most improbably random people, like Republican Senator John McCain, who memorably saved Obamacare with a single thumbs-down in the Senate despite the fact that he ran against the person who created it in the first place.
Now, Biden has a chance to not only stop the onslaught against Obamacare, but to expand it into something bigger. When Obamacare was first proposed, there was a component of it called the Public Option. In a nutshell, it allowed the US government to set up its own health insurance system to compete with the private sector, and it would have been a game changer because it would have given the government the ability to control prices. Because the government can simply mandate every health care provider to accept Public Option patients, they can create an unbeatable negotiating position to bring the for-profit health care system in the US inline with other developed countries.
Unfortunately, back in 2009, Ted Kennedy, a liberal senator who fully supported this idea, died, taking the super-majority that Democrats enjoyed down with him. Democrats were forced to abandon the Public Option idea, and that’s what got Obamacare stuck in this limbo position for the next 10 years.
Now, with Biden as president, he’s pledged to bring back the Public Option.
And Yet The Stock Market Will Likely Go Up
All this might seem scary to a capitalist who only cares about which direction the stock market will go, but surprisingly, Wall Street has very much embraced the idea of a Biden presidency.
Here’s the thing about Wall Street: It hates uncertainty. And the Trump presidency has been nothing but uncertainy. All. The. Fucking. Time.
And paradoxically, despite the fact that Trump loves to tout the stock market performance under his tenure, historically the stock market tends to do better under a Democratic president rather than a Republican one.
“Investors have seen more generous returns from equities when Democratic presidents were in the White House, going back to 1945.”
And while it may seem counter-intuitive that Wall Street would be cheering someone who’s planning on raising corporate taxes, they are also taking into account that Trump, as he was still recovering from COVID, blocked much-needed stimulus to the American people hurting from the pandemic.
The calculation is that the positive effect of actually helping people during COVID will be offset by any tax increases. So that’s why the stock market will likely go up under a Biden presidency.
But How Much Will Actually Get Implemented?
So that’s the current state of the union. I’m sure some of you agree, and some of you don’t with what the incoming president is planning on doing. But a big wildcard that even I can’t predict is: How much of his agenda will actually make it into law?
As of right now, the presidency has been called for Joe Biden, the House of Representatives has been called for Democrats, but the Senate has not. It’s currently (as of the time of this writing), sitting at 48-48. There’s still an uncalled race in Alaska, and in Georgia, the candidates are going to head into a run-off election that won’t take place until January. So we have no idea who will control the Senate.
If Democrats control the Senate, then the government will become a rubber-stamp factory for Joe Biden’s agenda. But if Republicans retain control of the Senate, then Joe Biden may enter office as a lame duck from day one.
I don’t know what’s going to happen. Do you? Let’s hear it in the comments below!
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