The 46th President of the United States Biden has just been sworn in on Capitol Hill. What are the highlights of his financial policies? What is the impact on major industry sectors of the US stock market? How likely is his financial policy to be approved? The author hopes to share something with you through this article.
1、 Three cores of Biden's fiscal expenditure
As a long-term democratic moderate statesman, the core of Biden's fiscal expenditure should reflect the core demands of the long-term policies of the Democratic Party, that is, to reduce social polarization between rich and poor, strengthen supervision, especially environmental protection, and provide better medical care and other benefits to low-income people in society. Judging from the election of Finance Minister, Economic Advisory Committee, Chairman of the Securities Regulatory Commission and others nominated by Biden's team, Biden's financial policy will adhere to the more traditional Democratic philosophy and direction. The three cores of Biden's financial expenditure that can be expected now are the relief of the COVID-19 epidemic, infrastructure construction, and investment in new energy and environmental protection.
As far as the succession of previous Democratic presidents is concerned, from President Kennedy, President Johnson, President Clinton to President Obama, providing medical care and social welfare for the poor has always been the core demand of their governance. After Biden took office, the first thing he faced was the rampant COVID-19 epidemic. It can be said that health care and wealth distribution must be his biggest financial expenditure direction. The Biden team has announced a fiscal stimulus plan of 1.9 trillion US dollars. The main 12 measures are as follows:
1. Bail-out cheque
The plan requires each person to send an additional $1400 to eligible recipients. The money will be a supplement to the $600 payment approved by the Congress last December and issued at the beginning of this month, totaling $2000 per person. The condition for getting the bailout check is that the annual income of individuals in recent years is less than 75000 dollars or the annual income of families is less than 150000 dollars. The new round of assistance will include previously excluded relatives, such as some children over 17 years old, spouses of illegal immigrants, and people without social security numbers.
2. Increase unemployment benefits
Biden raised the weekly subsidy of $300 to $400 from the congressional relief plan in December, which led the federal government to raise the subsidy for the unemployed to $400 a week. At the same time, the unemployment benefits caused by the COVID-19 epidemic will be extended. Trump's last round of aid will end in March this year. Biden's new round of relief will continue until September this year.
3. Rent relief and eviction suspension
The plan will provide $25 billion in rent assistance to low - and middle-income families who lost their jobs during the COVID-19 period, and will also allocate $5 billion to help struggling tenants pay utilities. Biden also called on state governments to provide an additional $5 billion to help states and regions to help those at risk of homelessness. The plan also stipulates that the suspension period of eviction of federal tenants, which expires at the end of January, will be extended to September 30, and that people with federally guaranteed mortgages will be allowed to apply for housing loan forgiveness until September 30.
4. Food relief
Biden will increase the amount of food stamps issued by the federal government to low-income people across the country by 15%, extending the time to September instead of June. He will allocate another US $3 billion to help women, infants and children get food, and provide US $1 billion in food and nutrition assistance to residents in overseas territories of the United States. He will work with restaurants to provide food for Americans in need and jobs for laid-off restaurant staff.
5. Child care and child tax credits
The plan calls on Congress to establish a $25 billion emergency fund and increase $15 billion to the existing grant program to help childcare service providers, including family childcare centers, pay rent, utilities and wages, and increase the payment of epidemic related costs such as masks and other personal protective equipment. It is recommended to extend the childcare tax relief for one year so that families can recover half of childcare expenditure for children under 13 years old.
6. Tax credit for temporary child rearing expenses
Biden hopes to increase the child tax credit to $3600 a year for children under 6 years old, while $3000 a year for children between 6 and 17 years old will be refunded in full. He proposed to increase the maximum annual income tax credit for childless adults to nearly $1500, raise the income ceiling of the credit to about $21000, and expand the age range of eligible elderly workers.
7. Health insurance subsidy
He called on Congress to subsidize the medical insurance premiums of those who lost their job insurance before September, and increase and expand the premium subsidies of the Affordable Care Act, so that the insured would not have to pay more than 8.5% of their income for their income, which was also one of his campaign commitments. It is hoped that Congress will provide $4 billion for mental health and drug abuse disorder relief services and $20 billion to meet the medical care needs of veterans.
8. Resume emergency paid leave
The plan will restore paid sick leave and home leave that expire from the end of December to September 30. Benefits will be extended to workers employed in enterprises with more than 500 employees and less than 50 employees, as well as federal workers excluded from the original plan. According to Biden's suggestion, people who are sick, isolated or caring for children whose schools are closed will be given 14 weeks of paid leave. The Government will reimburse employers who employ less than 500 workers for the full cost of providing leave.
9. More help for small businesses
The plan calls for $15 billion to separate it from the existing "salary protection plan" and create a new grant plan for small business owners. It also proposes to invest $35 billion in certain state, local, tribal and non-profit financing schemes that provide low interest loans and venture capital for entrepreneurs.
10. Assistance to states and schools
Biden hopes to provide US $350 billion to state, local and regional governments to keep their front-line workers employed, distribute vaccines, increase testing, reopen schools and maintain important services. US $20 billion will be provided to the worst hit public transport institutions to help avoid layoffs and route cuts. Provide an additional 170 billion dollars for primary and secondary schools, colleges and universities to help them reopen and operate safely or promote distance learning.
11. Increase support for vaccines and testing
The plan calls for an investment of $20 billion in the national vaccination plan, including the establishment of community vaccination centers nationwide and mobile forces in hard to reach areas. Biden will also increase federal support to vaccinate Medicaid participants. The proposal will also invest $50 billion in testing, provide funds to purchase rapid testing, expand laboratory capacity and help schools implement routine testing to support reopening. It will also provide funds for the employment of 100000 public health workers, nearly tripling the number of community health workers. It will address health gaps by expanding health services in community health centres and tribal lands. It will support mitigation strategies for long-term care institutions and prisons experiencing outbreaks.
12. A minimum wage of $15 an hour
Biden called on Congress to raise the minimum wage to $15 an hour and end the separate minimum wage for the disabled and the service industry.
Of course, these 12 measures are all financial stimulus measures introduced in response to the COVID-19 epidemic. After the epidemic ends, the financial expenditure of Biden's team will focus on infrastructure and new energy industry. The US government and the public are full of complaints about the old infrastructure in the US, and there is consensus between the two parties in Congress on investment in infrastructure construction, so the bill is likely to be passed. Environmental protection is the core concept of many people in the Democratic Party, and will also be promoted. Biden once said that the first thing he should do after he became president of the White House is to rejoin the Paris Climate Change Agreement. Therefore, industries including electric vehicles, wind power generation and solar power generation will be the main revenue sectors of Biden's fiscal stimulus.
2、 Biden's direction of increasing fiscal revenue
In recent years, the United States has a huge fiscal deficit, and the stock of national debt has been rising. When conducting fiscal stimulus and increasing expenditure, it is bound to increase income. Therefore, Biden's financial team has also proposed some plans to increase fiscal revenue, especially tax increases.
The following is a brief introduction of Biden's plan for increasing corporate and personal taxes:
1. For changes in personal payroll tax, personal income tax and inheritance and gift tax:
· 12.4% of the salary tax of the old age, survivors and disability insurance (social security) will be levied on the income of more than 400000 dollars, and the tax will be paid by the employer and the employee in half.
· Restore the maximum individual income tax rate of taxable income above $400000 from 37% after Trump's tax reduction bill to 39.6% before.
· The capital gains tax rate on income of more than $1 million was raised from 15% to 39.6%.
· Add the tax preference of tax deduction item by item of taxpayers whose income exceeds 400000 dollars to the upper limit of 28%, which means that taxpayers whose income exceeds the upper limit of the income and whose tax rate is higher than 28% will face limited deduction item by item.
· Increase the amount of inheritance tax and gift tax by restoring the tax rate and allowance to the level of 2009.
2. Changes in corporate income tax:
· Increase the corporate income tax rate from 21% to 28%.
· A minimum income tax of 15% will be levied on companies whose book profits reach or exceed $100 million.
· The global intangible low tax income (GILTI) tax rate obtained by foreign subsidiaries of US companies will be doubled from 10.5% to 21%, and the GILTI exemption for investment in qualified commercial assets (QBAI) of less than 10% will be cancelled.
· Establish a manufacturing tax credit to reduce the tax liability of enterprises whose employees are laid off or large government institutions fail.
· A 10% surcharge is levied on companies that "provide offshore manufacturing and service work to foreign countries to sell goods or provide services to the U.S. market". This additional tax will increase the effective corporate tax rate of outsourcing activities of American enterprises to 30.8%.
· Establish a 10% "Made in America" tax credit that can be prepaid for activities such as resuming production, revitalizing existing closed or closed facilities, re equipping facilities to promote manufacturing employment or expand manufacturing wages.
· Expand a number of renewable energy related tax credits, including carbon capture, use and storage tax credits, residential energy efficiency credits, and recovery energy investment tax credits (ITC) and electric vehicle tax credits. End tax subsidies for fossil fuels.
3、 Expand supervision
The leader of Biden and Trump's handover team is Delaware Senator Kaufman, a Democrat who emphasizes supervision very much. Ms. Yellen, the proposed Treasury Secretary, is also a veteran of the Obama era who promoted the supervision of Wall Street in the last round. Gensler, the proposed chairman of the Securities Regulatory Commission, is also a veteran who emphasizes the supervision of the securities industry. It can be said that the Biden team's tax increase and supervision of American enterprises should be promoted simultaneously.
The expansion of supervision can be predicted from the following aspects: finance Regulation, science and technology regulation, and environmental protection regulation.
From the financial point of view, the theme of supervision on Wall Street during Trump's tenure was to relax supervision, including mergers and acquisitions, proprietary trading, cryptocurrency, etc. After the Democratic Party takes office, it should reverse this trend and strengthen supervision instead. Ms. Yellen has always advocated supervision. On her last day as the chairman of the Federal Reserve, she also signed a document to force Wells Fargo Bank to restructure its board of directors. She also issued an open letter two years ago with other senior financial officials of the opposition Democratic Party, calling for strengthening the supervision of large financial institutions. Therefore, after this Democratic Party took office, it is expected that large financial institutions will be required to split their businesses, systemically important insurance companies will be re regulated, and the cryptocurrency industry will be required to strengthen compliance.
From the perspective of technology enterprises, Biden's team will raise antitrust demands in addition to raising taxes on technology enterprises. At present, there are five social platforms with more than one billion users in the world, four of which are owned by Facebook. At least two of these four companies should be required to be separated. Amazon's monopoly on cloud computing, e-commerce, logistics and other aspects will eventually be resolved by splitting and listing. Whether social media should be supervised according to media is also an urgent problem for Biden's team to solve. In addition to the pressure from the United States, there is also pressure from the European Union on the regulation of these technology enterprises. It can be said that it is time to introduce.
In the Trump era, the regulation of environmental protection was extremely relaxed, which is bound to reverse in the Biden era. For example, the restrictions on carbon emissions, the re tightening of oil and gas exploitation in the Arctic region, the Pacific coast, Dakota region, etc., and the enforcement of pollution laws for enterprises will be strengthened.
4、 Monetary policy
The monetary policy may be the only one in the US financial policy that will not change much at present. First, because of the independence of the Federal Reserve, neither Biden's White House team nor Congress can directly change the US monetary policy. The Federal Reserve Chairman Powell's term of office is still two years away. Before the end of his term of office, it is difficult to make structural changes in monetary policy. The other two vice chairmen of the Board of Governors of the Federal Reserve, except for one Republican appointed by Trump, the only Democrat is Director Brainard. She was a hot candidate for Biden's Treasury secretary. Later, it was said that Biden feared that after the appointment of Brainard, the Federal Reserve would not have a senior Democratic official. Brainard will continue to work at the Federal Reserve, and is likely to be appointed as the chairman of the Federal Reserve in early 2023.
Of course, Ms. Yellen, as the former chairman of the Federal Reserve and having worked in the Federal Reserve for more than 30 years, should be able to exert influence on monetary policy while managing the Ministry of Finance. After the COVID-19 epidemic, modern monetary theory (MMT) became popular, and the boundary between fiscal policy and monetary policy was blurred. Therefore, the Federal Reserve should continue its zero interest rate and quantitative easing policies, and constantly release liquidity should be the current policy center. However, if the inflation rate rises in the second half of the year, there is also a considerable probability that the Federal Reserve will tighten monetary policy at the end of the year.
5、 Impact on US stocks
To sum up, the fiscal policy, monetary policy and regulatory thinking of Biden's financial team are quite consistent with the traditional Democratic Party philosophy. Relatively speaking, among the 11 major sectors of the US stock market, the main beneficiary industries should be related stocks such as health care, consumption, new energy and infrastructure. From the perspective of enterprise size, SMEs may get more subsidies and other support, while large multinational companies will face more regulatory and tax pressures.
Finally, it needs to be added that the actual power faced by the Biden team is far lower than that when Trump took office in 2017. When Trump entered the White House, the Republicans in both houses of the 115th Congress were the majority. In the Senate, Republicans voted 54 to 44 against Democrats (two additional independent senators). In the House of Representatives, Republicans voted 246 to 187 against Democrats. Therefore, Trump's tax reduction bill and deregulation passed smoothly. The 117th Senate of the United States, which Biden swore the oath at the same time this year, had 48 votes to 50 votes for the Republican Party (two additional independents and Democratic senators jointly deliberated). The House of Representatives has 221 Democratic votes to 211 Republican votes, and at least four Democratic representatives will resign to join Biden's cabinet. In fact, Biden needs a very weak majority in Congress to pass the bill.
Generally speaking, the party in power in the mid-term election will lose its seat in the Congress. Therefore, the election of the Democratic Party in the 2022 mid-term election is facing challenges. Therefore, both the financial policy, monetary policy and increased supervision of the Biden team will encounter challenges far greater than those of their predecessors.
Finally, Trump is the president who has appointed the most federal judges in the history of the United States, including three Supreme Court judges, 54 federal appeals court judges, and 174 federal district court judges. These judges serve for life, and their views are conservative. If the Democratic Party's administrative and legislative decisions are appealed to the judicial process, it is also very likely to meet the challenge of conservative judges. Therefore, the author believes that there is little possibility of substantial changes in the direction of US policy in the next few years.
