What if Biden Wins the Election?

By Shane Barber

September 11, 2020

What if Biden Wins the Election?

Election Year Planning: Things to Prepare for if Biden Wins the Election

2020 has been, for lack of a better term, like living in a made for television movie. Who could have imagined that we would be living in the kind of chaos we’re living in today just a few months ago? A novel Coronavirus killing hundreds of thousands globally. Markets are crashing, lockdowns, quarantines, business closures, toilet paper shortages, material shortages, supply chain breakdowns, rioting, looting, and wholesale destruction of private and public property. You couldn’t make up stuff this sensational if you tried, but if you could, you’d want to include a presidential election too. You know, to add another bit of intrigue to the story. But it’s not a story. It’s our reality in 2020. 

Today, Bud Kasper and I will cover the key points that we think you should be aware of going into the election that occurs less than two months from now. We will share what we believe the potential opportunities and challenges will be in a Trump re-election or a Biden win in November. We’ll also tell you what protections you may want to have in place before or shortly after the election based on your feelings about who may win. And while we all come into this with our own opinions and biases, we’re going to let the math and the logic take us where it will as we analyze the two candidate’s positions. Bud will be covering if Trump wins the election, and I’ll be covering if Biden wins the election. And so, without further ado, here we go. 

What is Biden’s Platform if he Wins the Election?

First and foremost, since we’re talking about politics, and no matter how hard we try not to, we’re going to gore someone’s ox. Everything that isn’t my own opinion here has a source for you to read if you chose. 

Additionally, I’ve included links to Joe Biden’s campaign website and each of the major platform positions that he’s posted as of the writing of this article. We’ll be updating this information just before the election. Nothing is ever certain except change in politics, and we want you to have the most up-to-date information possible. 

The Biden campaign focuses on a few major themes. Those are: 

We’ll break down a few of these below. There are more, but these are the major items.

Biden’s Social Security Plan if He Wins the Election

We’re going to kick this off with his plan for Social Security, because that topic is a hot one among the majority of our clients, and it likely is for you as well. You can find some of the details of his Social Security plan hereCNBC recently ran an article on the plan’s points as they stand today as well.

Everyone with a pulse knows that Social Security is on a glide path to insolvency if no one takes action in the next few years. By law, the program can only pay out what it takes in from the payroll tax once the “trust fund” has been depleted. There is widespread agreement that once the trust fund is empty, benefits for current and future recipients might reduce by 20-25%. 

For many recipients, that reduction would be disastrous. The Biden plan for shoring up Social Security calls for raising the income cap on payroll taxes for those earning over $400,000. The current cap is $137,000. Under the Biden plan, those making between $137,000 and $400,000 would see no difference in their payroll taxes. However, every penny earned over $400,000 will be subject to the 12.4% payroll tax on top of the federal, state, and local taxes. 

Analyzing the Data on Social Security

Here’s a nice side-by-side analysis of the current and proposed laws from Penn Wharton University of Pennsylvania.

What if Biden Wins the Election - Reforms to Taxes and Benefits on Social Security

In their analysis, they note the following:

“The Biden plan increases Social Security taxes by creating a ‘donut hole’ in the payroll tax structure. While earnings immediately above the current taxable maximum would continue to be exempt from Social Security taxes, earnings above $400,000 would be taxed at the 12.4 percent rate. However, the new taxes on earnings above $400,000 would not trigger additional benefits.”

“Over time, the donut hole would disappear and all earnings would be subject to full payroll taxes. The reason for this disappearance is that the annual taxable maximum level ($137,700 in 2020) would continue to grow with average wage growth, as under current law, while the $400,000 threshold would remain fixed. The donut hole, therefore, disappears once the annual taxable maximum level reaches $400,000.”

That means that eventually, ALL income will be subject to the additional 12.4% payroll tax that funds the Social Security program. On paper, this may sound good to some, and in theory, would help close the hole in the bottom of the “trust fund” bucket that is currently pouring out money. However, the plan’s increased expenditures and the labor supply distortions caused by the donut hole tax wind up reducing our GDP, our Capital Stock, Labor Income, and Labor hours. 

From the Wharton analysis:

“As summarized in Table 3, PWBM projects that the Biden plan will reduce GDP by 0.6 in 2030 and by 0.8 percent by 2050. The improvement in the actuarial balance ratio effectively reduces government debt under the unified surplus measure. By itself, this improvement would increase the nation’s capital stock and GDP.”

Biden’s Plan to Offset the Social Security Problem

However, the Biden plan has two main offsetting effects that work in the opposite direction.

First, a large share of the Biden plan’s benefit increases accrues to households who have little retirement savings to offset. However, to the extent that the plan’s benefit increases accrue to households who supplement retirement resources with personal savings, those households save less for retirement and work less or retire earlier. The resulting reduction in personal savings offsets some of the capital stock gains from deficit reduction, and reduced labor supply directly reduces national output.

Second, the new donut hole tax distorts labor supply decisions by more than the current payroll tax. As we explained previously, the current payroll tax does not distort labor supply by as much as non-Social Security taxes. The reason is that payroll taxes link to expected future benefits. Put differently, part of the current law payroll tax for the average worker is more similar to a “contribution” than a tax. Any tax distortions that occur arise from imperfect linkages between payroll taxes and expected future benefits due to inter-generational (“pay-as-you-go” financing) and intra-generational redistribution (progressive benefits).

What Happens to Social Security if Biden Wins the Election?

“It’s like getting a gift from your children on your birthday, which they bought with your credit card. It was a nice thought, but you still paid for it.” – Shane Barber

The Biden plan’s donut hole tax increase does not trigger a corresponding increase in future benefits. Therefore, it is wholly distorting to labor supply because of its lack of “contribution-benefit” linkage. Moreover, a well-established principle in public economics is that these labor supply distortions increase in proportion to the square of the tax rate. Hence, a new tax on top of existing taxes distorts labor supply decisions more than the new tax relative to zero initial taxes. The additional 12.4% tax in the Biden plan applies to households that already face the highest combined statutory federal-state-local income and payroll tax rates.

In total, we project that by 2050 these effects cause the capital stock to decline by 1.5% (reducing wages), labor income to decline by 0.8 percent, and labor hours to decline by 0.1 percent. Together, this leads to our projected GDP reduction under the Biden Social Security plan.

In short, what all this means is that if we are going to save the Social Security program, we cannot continue to increase benefits while trying to refill the “trust fund.”

Social Security Needs Help, but the Biden Plan May Not Cut It

No one wants to see the Social Security system run out of surplus funds and have to reduce benefits for all recipients. However, that means that difficult decisions must be made to maintain its solvency. Unfortunately, in my opinion, the Biden plan does nothing to address those difficult decisions or the long term solvency of Social Security. It continues to promise more and more benefits to be paid for by “others.” When in reality, it’s like getting a gift from your children on your birthday, which they bought with your credit card. It was a nice thought, but you still paid for it. 

Figure 1 on the Penn Wharton website shows a very cool set of interactive models. One of them is a Social Security model that allows you to see what happens to the trust fund balance by changing Social Security benefits’ parameters. You might want to go check it out if you’re into that kind of thing. 

I found it interesting that, if we increased none of the spending proposed by Biden, and instead increased the taxable maximum wage to $150,000, raised the full retirement age to 70, used the Chained CPI for the COLA calculation, and applied 50% of the payroll tax to income over $250,000 we could make the system solvent indefinitely. 

You can also skip the additional payroll tax on income over $250,000 and simply increase the payroll tax to 13.6% for all. Keeping the rest of the assumptions from the example above the same, you can also make the program solvent indefinitely. 

For me, since the benefit/contribution ratio largely skews to the lower-income earners (not a judgment, just a fact), this would be a more equitable plan. It would encourage the difficult conversations we need to fund the program’s long-term solvency. 

What Happens to Taxes if Biden Wins the Election?

Speaking of paying, let’s move on now to the Biden Tax plan. 

They say the only two things in this life that are certain are death and taxes. In a lot of cases, when Uncle Sam gets involved, even death is taxed. Talk about adding insult to injury. Here is a list of the top 10 tax increases proposed under the Biden Tax plan from an article in the Federalist. 

The List of Tax Increases in Biden’s Plan

  1. Taxing capital gains as ordinary income for individuals making more than $1 million ($800 billion revenue increase over ten years)
  2. Increasing the corporate income tax rate back up to 28% ($730 billion)
  3. Ending the “stepped-up basis” of taxation, under which the cost basis of inherited property (e.g., stocks, real estate, etc.) for determining capital gains tax liability is the value of the property at the time of the inheritance, rather than the value of the property when the deceased individual purchased the asset ($440 billion)
  4. Imposing a 15% minimum tax on all corporations with net income over $100 million, but who paid no federal income taxes ($400 billion)
  5. Doubling the rate of tax on profits generated overseas to 21% ($340 billion)
  6. Limiting the value of deductions for the wealthy to 28%, a proposal included in several Obama administration budgets ($310 billion)
  7. Raising the top rate of tax back up to 39.6% ($90 billion)
  8. Imposing sanctions on countries that “facilitate illegal corporate tax avoidance” ($200 billion)
  9. Eliminating real estate tax loopholes ($70 billion)
  10. Ending fossil fuel subsidies ($40 billion)

Altogether, the Biden plan expects to raise an additional $3.2 trillion over the next ten years by taking that money out of the economy (tax payer’s pockets) and putting it into Uncle Sam’s pocket. All in an effort to pay for his spending plans outlined on his website and linked below. Let’s take these items one at a time and go a little deeper on what their effects on the economy might look like. 

Taxing Capital Gains as Ordinary Income for Individuals Making More Than $1 million

As part of the Biden tax plan, item seven from the list above shows that the top tax bracket would go back to 39.6% for the top wage earners. That means that anyone who makes more than a million dollars a year will pay 39.6% federal + 12.4% payroll + state and local taxes on every dollar they earn, meaning they’ll be paying somewhere between 52% and 65% of their income in taxes. And then, on any gains they make by investing what’s leftover (if there is any leftover) in stocks, bonds, or real estate, they’ll be taxed another 39.6% on those gains.

Gains made by investing money on which they’ve already paid 52-65% taxes. I’m having a hard time seeing how this plan would encourage high wage earners to do anything but find a tax shelter for their money. This would have a negative effect on investments at a time when it’s more critical than ever to encourage it, rather than discourage it. 

Increasing the Corporate Income Tax Rate Back Up to 28%

I’ve said for a very long time that corporations don’t “pay” taxes. They pass the tax burden on to their end consumer in the form of higher prices. It might not seem fair, but it’s the way the world works. It’s why, from a strictly mathematical perspective, higher corporate taxes disproportionately affect those on the lower end of the income spectrum by driving up the cost of goods and services they need daily. 

Putting that burden on lower-income earners doesn’t sound like a smart economic policy to me. But beyond that, the bump from the current corporate tax rate to 28% is a 25% increase in the corporate tax rate. So let’s assume for a moment that a corporation doesn’t increase its prices to cover the higher tax burden. It would take a 25% reduction in its profit, which would likely mean they couldn’t employ as many people, which would mean they would have to lay off some workers, most if not all of whom are on the lower end of the income spectrum. Either way, higher corporate taxes hurt the lower wage earners the hardest. At a time when our unemployment rate is elevated due to the Coronavirus, it seems counterproductive to be increasing the corporate tax rate. 

Ending the “Stepped-up Basis” of Taxation on Inherited Property

This proposal is one of the more draconian I’ve seen in a while. Let’s say you inherit the family farm from your parents, and they’ve owned for 40 or 50 years. And let’s say that when they bought the farm, it cost them $100,000. That original purchase price would be the cost basis for you when you inherit the property. And let’s say that the farm is now worth $1,000,000 on the open market. Under today’s law, you would get a step up in basis to the current value of a million dollars, and without taxes on the inheritance. 

Under the Biden proposal that step up in basis goes away, and the day you inherit that property, you will owe the government depending on your income in that year, anywhere from $180,000 to $356,000 under the Biden Tax plan. If you can’t come up with the money to pay the taxes, you don’t get to keep the farm. You would wind up having to sell the farm to pay the government. If you plan on leaving any highly appreciated assets to your heirs, or if you stand to inherit some highly appreciated assets, preparing for the inheritance/distribution will be critical under Biden’s proposal. 

Imposing a 15% Minimum Tax on all Corporations with Net Income Over $100 million, but Paid No Federal Income Taxes

This particular tax aims at roughly 300 companies in particular. Among them are Amazon and Netflix. These companies have reported paying no federal income taxes in recent years. So, it sounds like they should have to pay something, right? Well, these companies have done nothing illegal, immoral, or fattening. They followed the tax law as written. They invested massive amounts of capital in facilities and other investments, paid some of their employees in stock, and lost carryforwards from years when they weren’t profitable. 

These things are deductible on their corporate tax returns and were written into the tax code by the very people who now seek to punish them for following the rules they enacted. Perhaps it’s an admission that they screwed up when they wrote the rules. Maybe they wrote the rules to benefit their then donors, and now see a pile of cash they can grab without hurting those same donors who were the beneficiaries of those rules. Either way, it’s bad tax policy, in my opinion. Suppose the deductibility of items they’ve used to get to zero income tax due is the problem. In that case, it should be addressed by changing the existing rules instead of adding layers of complexity to an already enormously unmanageable tax code. 

Doubling the Rate of Tax on Profits Generated Overseas to 21%

This is a tax on what is known as Global Intangible Low Tax Income or GILTI, which was established by the 2017 tax cuts and jobs act to tax the income earned by foreign subsidiaries of U.S. firms. It is currently 10.5%, and the Biden proposal would double it. 

In theory, the goal would be to discourage these corporations from storing assets offshore and operating domestically. However, by raising the GILTI to 21% while subsequently raising the corporate tax to 28%, there’s still the incentive to store those assets and operations offshore. That may be why there is a diminishing return on this proposal in the ten-year plan, as scored by the Tax Foundation

Limiting the Value of Deductions for the Wealthy to 28%

This proposal will cap the benefit of your itemized deductions to 28% of their value. In practice, if you are in the 28% tax bracket or higher, the value of itemized deductions to you and your family is going to be limited. In effect, it’s another tax on those who are higher wage earners. But it’s not just for millionaires. 

Under the current law, if you are married and have combined taxable income of $326,600 or more, you’re probably going to be in the 28% bracket. Here in Kansas City, and thriving metropolitan areas across the country, there are a lot of couples who fit that description. Are they well off? Yes. Are they rich? No. Most of them are raising families, putting kids through college, and saving money for their eventual retirement. But they’re not lighting the fireplace with $20 bills.

Learn More About His Tax Policies

For some insight into the thinking behind this and the other tax policies promoted, this is an excerpt from the Biden-Sanders Unity Task Force Recommendations that should elucidate the Biden Tax plan’s goals. Some will think this is a good idea; some will not. Either way, you have the information.

“Building a More Progressive Tax System: Use taxes to address extreme concentrations of income and wealth inequality. As a means of strengthening tax progressivity and paying for investments in U.S. productivity, increase taxes on the wealthiest Americans by limiting unequal and unproductive tax expenditures. In addition, limit the ability of wealthy taxpayers to defer and avoid taxes on income (especially that relate to financial investments), tax liabilities of ultra-large banks to promote financial stability and fund investments in American productivity, and expand payroll taxes on upper-income taxpayers to fund more generous Social Security benefits.”

You can find the pdf of the 110-page document here if you care to pursue it. 

Raising the Top Rate of Tax Back Up to 39.6%

We already addressed this with the first tax proposal, but it’s worth repeating here. With the top bracket at 39.6% and the payroll tax at 12.4% on all income, the federal take of high wage earners’ income will be 52%! Add in state and local taxes, and these people will have up to 65% of their earnings confiscated by the government. Morally this is reprehensible. When you have over half of what you’ve earned by your own skill and hard work taken from you by someone who did nothing to deserve it, you are no longer working for yourself and your family. You’re now working for the government. It’s coercive, confiscatory, and unsustainable. 

You have to ask yourself what you would do if you were in that position. 

Would you sit there and take it, or would you find another way? I’d bet the majority would find another way. This means that the wealth they are attempting to confiscate will no longer be there in just a few short years. 

Don’t Bite the Hand that Feeds You

I’ll give you an example just in case you think I’m exaggerating. I’ve become an avid podcast listener, and I listen to all kinds of people. One gentleman, I just heard on a recent podcast, who shall remain unnamed, gave up his right to vote in presidential elections by moving to Puerto Rico. Why? Since they have no representation in congress, Puerto Rico residents are not subject to federal income taxes. 

The same applies to the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa. If you think there won’t be a mass movement of the Biden tax policies’ targets to these kinds of locations, you might be in for a surprise. To be clear here, I understand we have to fund the government, but if you kill the goose that lays the golden eggs, there won’t be any more golden eggs. 

Imposing Sanctions on Countries that “Facilitate Illegal Corporate Tax Avoidance”

First of all, I think someone needs to work on their use of the English language. Tax avoidance is 100% legal when you follow the rules in the tax code. Tax EVASION is probably the more accurate word that should have been used by the team, but maybe there’s something more to the wording that meets the eye. I’m all for sanctions on countries that facilitate tax evasion. Go get ’em! But tax avoidance, again, if it’s in the tax code, and they don’t like it, change the tax code. Something seems a little sketchy about this, and I’m trying to get to the bottom of it. Hopefully, I’ll have some clarity by the time we post the updates just before Election Day. 

Eliminating Real Estate Tax Loopholes

Let’s be clear here; there is no such thing as a tax loophole!! If it’s in the tax code, it got put in there intentionally! And it likely got put there by the people who rail against it in political races. So please, everyone, all of you in politics, stop saying there are loopholes in the tax code. Say what you mean. And most of the time, when you hear someone talking about closing a loophole, it means they think they’re leaving your money in your pocket, and they want to find a way to take it. It’s that simple. 

Ending Fossil Fuel Subsidies

What I said above applies here too. If you look at what is being called “subsidies” under the plan, they are nothing more than deductions and expensing on an oil producer’s tax return. We’re not giving money to the oil industry; they’re following the tax law as written. Don’t like the tax law that exists? Change it! But words mean things, so use the correct words. Please. 

Scoring the Biden Tax Plan

The Tax Foundation has scored the Biden Tax plan, check it out if you would like to go in-depth. Here is a concise chart that gives the projected impact of the policies if implemented as written. 

What if Biden Wins the Election - Summary of Biden Tax Proposal

As you can see, the Biden Tax proposal’s projected economic impact is a 1.51% reduction in our GDP, a 3.23% reduction in our Capital Stock, and the loss of 585,000 full-time equivalent jobs. If we combine this with the 0.8% reduction in GDP that would result from his Social Security plan, our GDP will take a 2.31% hit. 

Keep in mind that we’re only getting about 3% to 3.5% growth in GDP today. So, our economy would come close to grinding to a halt with implementing both of these plans. 

What is Biden’s Energy Plan if He Wins the Election?

Let’s move on now to the next item of significant importance and potential economic impact, the Biden Green Energy plan. They call it “Clean” energy, but they mean Green. 

The Biden Plan to Build a Modern, Sustainable Infrastructure and an Equitable Clean Energy Future

You can find Biden’s plan here, but the major takeaway from the bottom of the 6th paragraph introduces the plan and its many initiatives:

“Biden will make a $2 trillion accelerated investment, with a plan to deploy those resources over his first term, setting us on an irreversible course to meet the ambitious climate progress that science demands.”

So, in the first four years, they intend to spend two thirds of the $3.2 Trillion he plans to raise in tax revenue over ten years. I’m having trouble with the math there, but let’s look beyond that for a moment. Candidate Biden has indicated that he will put the coal, oil, and fracking companies out of business and replace them with wind and solar and maybe some nuclear electrical generation. 

Biden’s Expressed Stepping Back from this Policy, but is He Really?

Subsequently, he’s backed away from that position a little bit because he is getting push back from the states and municipalities where those industries are their economic lifeblood. However, based on my reading of his positions in the documents from his campaign website, I would submit that that is precisely what he intends to do. I present their words to consider:

“Biden will commit our country to fulfilling our obligation to all workers impacted by the energy transition, like coal miners and power plant workers and their communities. Coal miners and power plant workers took on dangerous jobs to power our industrial revolution and the decades of subsequent economic growth. As economic trends continue to shift our country away from coal as an energy source, we have an obligation to help these workers and their communities succeed.”

Say Goodbye to Many Jobs

This proposal will put tens of millions of people out of work almost overnight. We can all agree that we want to have the cleanest energy possible with the technology available at the time. Still, we should also agree that entire industries’ wholesale destruction in pursuit of a political agenda is bad policy. 

Energy is the lifeblood of our economy. It powers everything we do, everything we use, everything we consume, everywhere we go. Your food requires energy to be planted, grown, harvested, shipped to the processing plant, packaged, and shipped to the store. Then that product is refrigerated in transit and the store and finally transported to your home to be cooked for your consumption. 

Is it Smart to Abandon What’s Already Built?

Presently, the primary energy sources for all those steps are gasoline, diesel, natural gas, and oil. All of which are available to us in abundance and at a very low cost. Today’s technologies we have developed and put in place make America’s energy and transportation industries the cleanest in the world. Yet, in the name of controlling the climate, something I find to be one of the most absurd obsessions ever to befall man, we’re considering abandoning all of it? 

Additionally, this will be “subsidized” by the federal government directly to the tune of trillions of dollars. Yet, the Biden tax plan called for ending the fossil fuel subsidies that are just tax deductions and claimed it would save $40 billion. There doesn’t seem to be a lot of consistency in these two divergent policies. 

It’s also worth noting that without fossil fuels, your vehicle will be obsolete, you won’t be able to fly anywhere, and you won’t be getting any new Tupperware or plastic containers because they’re made from oil. 

Oh, and Saran wrap, forget about it. Tires for your electric vehicle, nope. Your boat, well, you can at least float in it, don’t get too far from shore though, and keep your paddle handy. All those cool battery-powered tools that you love so much, no plastic. So, I hope they last a long time. I’m sorry for the sarcasm (kind of), but I genuinely wonder if they’ve given any of this any thought. I just don’t think they have. 

Energy in Transition

Michael Lynch wrote in a Forbes article on July 15, 2020, that:

“Without knowing the details yet, there are a lot of cautionary remarks that need to be made, not just about this plan, but about politically motivated energy policy in general.”

“There is an excellent example of how to go wrong with a major program of energy transition — the German Energiewende. To quote a recent article in Der Spiegel, ‘Germany’s Federal Court of Auditors is even more forthright about the failures. The shift to renewables, the federal auditors say, has cost at least 160 billion euros in the last five years. Meanwhile, the expenditures ‘are in extreme disproportion to the results,’ Federal Court of Auditors President Kay Scheller said last fall…’

“The policy needs more careful consideration than sound-bites, clichés, and aphorisms, but rather detailed cost-benefit analysis if it is to avoid the kind of waste that occurred in the German Energiewende program or the Carter Synthetic Fuels Corporation.”

Is there a Carbon-Dioxide Paradox Here?

Here’s another thought, and then I’ll move on. All this is in an effort, ostensibly, to combat global warming or what they now call climate change because the globe isn’t warming right now, by reducing/eliminating carbon dioxide from the air. 

And in the same breath, they talk about planting millions of trees in urban areas, paved to lower the temperatures by giving some much-needed shade. Great idea! But they must have overlooked that trees breathe the very thing they want to remove from the air, carbon dioxide. 

How are we going to grow trees, or any plant for that matter, without carbon dioxide? All I’m saying is that where energy and the environment are concerned, we cannot, and must not, act out of fear or haste. Instead, we should be thoughtful, deliberate, reasoned, and consider all the unintended consequences of whatever actions we do take. And let’s certainly not throw $2 trillion at a plan that obviously hasn’t been through that process. 

Investing in Energy if Biden Wins the Election

In the event of a Biden presidency, though, these are things to consider for your investment portfolio. Suppose you have investments in energy companies in their target zone, public power plants, or airlines, container shipping companies, or oil drilling exploration or equipment companies. In that case, you may need to hedge your stock positions for a while to see how this plays out, or maybe consider beginning to liquidate them sometime after the election. Obviously, there will be places to put the money that will be more favorable, and you can reallocate to those companies or sectors. 

The Biden Plan to Ensure the Future is “Made in All of America” by All of America’s Workers

Almost all of us can get behind a plan to buy American made products from American companies, employing law-abiding, patriotic American workers. It’s pretty universal. For the last 50 plus years, every president, including our current president, has had the same desire. 

It’s a noble ideal and a worthy goal. We’re seeing great strides in bringing manufacturing back to the U.S. over the last four years, and it’s nice to know that in the event Biden wins the election, he would want to continue to keep that momentum going.

Some believe we can do it without having to have the government spend a ton of money. However, by leveling the playing field with our trading partners, reducing the burdens of over-regulation, and making the tax structure fair and competitive, American manufacturers can compete on a global scale. That has been the approach of the current administration. A Biden administration would take the more heavy-handed, government spending and regulations route.

The Big Spending Plan

There are two big-spending priorities in the Biden plan. From his website, they are: 

“Biden will invest $400 billion in his first term in additional federal purchases of products made by American workerswith transparent, targeted investments that unleash new demand for domestic goods and services and create American jobs.”

I would say here that if this is spending on things the government was already going to buy, there’s nothing wrong with it. However, the proposal’s wording says the goal is to artificially create demand for something that Americans are not now purchasing, whether that’s due to cost or lack of interest, supposedly create new jobs to meet the demand. 

Again, new jobs are great! The potential downside is that the government spends all this money creating demand, which ends up temporary because the American consumer never buys into whatever the government wanted them to buy. Those jobs disappear as quickly as they came. The government is terrible at creating demand and terrible at picking winners and losers in the economy. It really is. And what we see as the number one priority under the list of procurement priorities is this: 

Specifically, Biden will:

“Commit to purchasing tens of billions of dollars of clean vehicles and products to support the expansion of clean energy generation capacity, ensuring we are on the forefront of the clean energy export markets of the future. Other countries should be buying the next generation of battery technology and electric vehicles manufactured by American workers.”

Electric Feel

I get it, electric-powered vehicles are cool! They’re fast, quiet, have a low center of gravity, and drive like a go-kart (well, some of them). But, they are ridiculously expensive and require government subsidies to make them affordable for most Americans. 

For people who pretend not to like subsidies, they don’t mind subsidizing electric vehicles, wind generation, or solar panels; you get the idea. I would LOVE to have one of the new electric pickup trucks that G.M. plans to begin making for Nikola. They’re good looking, 4-wheel drive, have a 600-mile range, and go from 0-60 in 2.6 seconds. But they cost over $100,000! 

Private Sector is Where It’s At

The reality is that the private sector, not the government, will get these vehicles to the point where they are viable for the masses. It’s just going to take longer than the government wants it too, and all the government can do here is slow things down even further. I wish it weren’t the case, but that’s the likely outcome. 

“Biden is proposing a dramatic, accelerated Research & Development investment of $300 billion over four years to create millions of good jobs today, and to secure our global leadership in the most critical and competitive new industries and technologies.”

I’m all for research and development—all for it. Back in the ’60s when JFK challenged us to go to the moon, we spent 2% of our GDP on public/federal R&D, according to the Biden plan, as laid out on their website. According to the same document, today we’re only spending about .7% of our GDP on public/federal R&D, hence the $300 billion over four years. But then it hit me. Our GDP is $20.5 trillion per year. 

So I did the math. What I found was that we are spending $140 billion per year on R&D, or $560 billion over the next four years, TODAY. So my honest question here is, do we need the additional 300 Billion, or is this intended to make people think we’re not spending any money on R&D right now? I don’t know. Again, I’m all for R&D. It’s brought literal magic to our everyday lives, and we’re all better off for it. If we NEED the extra money for R&D, I’m good with it. If it’s just campaign rhetoric, then, well, I won’t be surprised. 

The Priorities I Can Get Behind

The last four priorities on the Buy American plan are ones I can get behind, and, once again, we’re already doing them today.

  • Leverage federal buying power and the full range of government authorities, including the Defense Production Act, BARDA, and federal procurement, to make sure that we make critical products in America.
  • Change the tax code to eliminate the incentives for pharmaceutical and other companies to move production overseas and establish new incentives for companies to make critical products in the U.S.
  • Rebuild critical stockpiles, ensure adequate surge manufacturing capacity in times of crisis, and regularly review supply chain vulnerabilities.
  • Work with allies to reduce their dependence on competitors like China while modernizing international trade rules to secure U.S. and allied supply chains.

Scoring the Biden Platform if He Wins the Election

If you’re tired of reading right now, it’s because we’re 6,200 words deep into this article. I know my fingers and eyes and brain are tired right now too. Let’s wrap this up with a short scorecard of revenue and spending projections for the Biden campaign proposed programs. I’ll try to keep this last part as brief as possible. 

Biden’s Tax Plan Recap

Raise $3.2 trillion over the next ten years by

  1. Taxing capital gains as ordinary income for individuals making over $1 million ($800 billion)
  2. Increasing the corporate income tax rate back up to 28% ($730 billion)
  3. Ending the “stepped-up basis” on inherited property ($440 billion)
  4. Imposing a 15% minimum tax on all corporations with net income over $100 million, but who paid no federal income taxes ($400 billion)
  5. Doubling the rate of tax on profits generated overseas to 21% ($340 billion)
  6. Limiting the value of deductions for the wealthy to 28% ($310 billion)
  7. Raising the top rate of tax back up to 39.6% ($90 billion)
  8. Imposing sanctions on countries that “facilitate illegal corporate tax avoidance” ($200 billion)
  9. Eliminating real estate tax loopholes ($70 billion)
  10. Ending fossil fuel subsidies ($40 billion)

Biden’s Spending Plan Recap

Spend $7 trillion over the next ten years on: 

  • Climate change: $2 trillion
  • Infrastructure: $1.3 trillion 
  • Child care and elder care: $775 billion
  • Higher education: $750 billion
  • Health care: $750 billion 
  • “Buy American” plan: $700 billion
  • Housing: $640 billion
  • Opioid plan: $125 billion
  • Racial equality: $30 billion

I won’t bother with all the details of each of the spending plans because, at the risk of being redundant, they’re all linked below at the bottom of the article. 

The long and short of this, the era of tax and spend twice as much as you take in from those taxes is alive and well in the Biden camp. There is undoubtedly no real restraint in the Biden proposal for all the noise everyone likes to make about deficits and overspending. Compared to his contemporaries, from whom he emerged as the nominee, one could say there’s restraint. Warren wanted to spend 30 Trillion, and Bernie thought that was too low. In fact, he didn’t know what he was going to spend except that it was more than $30 trillion. So, in that light, one could call it restraint. 

What if Biden Wins the Election?

A lot is going on in the Biden platform, with many promises and many moving parts. All of which are the reasons my brain is tired right now. With less than 60 days to the election, if you don’t already know who to pull the lever for, I encourage you to look at the data I’ve provided here on what may happen if Biden wins the election. Additionally, consider all the data that Bud has provided in his article too

I appreciate your patience going through all of this, and I’m happy to have done it for you so that you don’t have to if you don’t want to. I’m here for you! 

Everyone, have a great week, be safe, and I’ll be back writing for you soon!

Shane Barber

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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.

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