“Republicans buy sneakers, too.” Michael Jordan, retired professional basketball player.
Question: What might we expect in the early stages of 2021 regarding changes to taxes, climate regulations, and consumer protection measures with the new administration?
Answer: Before we get started, I’d like to share a clever post from a friend highlighting the irony of obligatory disclaimers when speaking about the future: “Merry Christmas from your lawyer: I wish you a reasonably Merry Christmas (or festive period), that is in no way guaranteed, or limited to a reasonably Happy New Year (meaning the twelve (12) months from the date hereof).” You get the idea, there are no guarantees and most everything is subject to change.
Assuming a peaceful transition of power to the Biden Administration on Inauguration Day, January 20, 2021, the Biden administration’s economic policy outlook for the next year, while greatly influenced by COVID-19, will emphasize advancement of their priorities in the areas of energy and the environment, manufacturing, trade, and consumer protections.
Policy changes will likely be tempered by the slim Democratic majority margins in the House and Senate, but Democrats do have tools to enact noteworthy policies in the areas of taxation and spending. In the near term, policy uncertainty could contribute to increased financial market uncertainty and volatility. Longer term, the recovery-supporting measures and an increases in federal spending are expected to continue supporting positive market sentiment.
The first 100 days and beyond
The Democratic agenda is apt to begin with additional fiscal stimulus and the confirmation of key Biden appointees. Later this year, a budget reconciliation bill and tax changes are the probable focus. Questions and debate center on whether Democrats will start with economic items, thought to be a positive market influence, before tackling tax and regulatory changes, which can potentially be considered as a market negative. It’s important not to understate how impactful Senate control will be for control of the Senate agenda.
Budget and Taxes
With a narrow House majority and the need to get every Senator on board before passage of budget reconciliation and tax changes, this debate is likely to have false starts and breakdowns in negotiations. However, with reconciliation the only pathway for legislation with a simple majority, we expect Democrats to do everything possible to find a final compromise. The question of how to pay for increased spending on items like infrastructure, paid sick leave and child care, leads to tax increase considerations. Biden’s tax plan calls for raising the corporate tax rate to 28% and tightening tax rules on overseas income.
There is a big debate in D.C. about when to expect potential tax changes. Legislation isn’t allowed to be retroactive, with the exception of tax law, which can be retroactive to January 1 of the year passed. Democrats would likely take a staggered approach, if given the opportunity, but some changes could begin in 2021.
The federal government can use executive authority to modernize federal facilities to increase energy efficiency and clean energy measures. Gina McCarthy is the White House Climate Coordinator and she was the former Obama EPA administrator. This sends a clear sign that climate action is a key priority for 2021.
It is expected that during the early part of 2021 a significant focus will be on a consumer protection agenda. The Biden administration’s authority in this area is greater following the Supreme Court’s ruling in the Seila Law v. Consumer Financial Protection Bureau (CFPB) which gives the president immediate authority to fire and replace the Consumer Financial Protection Bureau Director at will. We expect this will be one of the earliest opportunities for the Biden administration to demonstrate a consumer protection focus to progressive lawmakers.
Biden has largely avoided polarizing picks for regulatory agencies; however, there are still key positions without a nominee. Democrats would have control over setting confirmation votes and would ensure many more of Biden’s picks receive a confirmation vote. Senate rules still allow delays in confirmation votes, which were used effectively by Democrats in the minority to slow the confirmation process during the Trump administration.
Generally speaking, Biden’s cabinet picks to date have signaled a prioritization of economic recovery and growth over a robust regulatory rulemaking agenda. However, a Biden administration will have significant regulatory levers at its disposal – even before nominees are confirmed by the Senate. Stay focused and plan accordingly.
There is no assurance that any investment strategy will be successful. The opinions expressed are those of the writer as of January 14, 2021, but not necessarily those of Raymond James and Associates, and subject to change at any time. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance does not guarantee future results. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
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This article provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at (239)389-1041, email dar[email protected] Website: www.raymondjames.com/Darcie