Democrat Joe Biden's policy proposals as the next US president (pending the outcome of potential legal challenges) could have mixed implications for investors if implemented, according to T. Rowe Price investment professionals. On the positive side, many see Biden as likely to prioritize additional major fiscal stimulus to help the economy continue to recover from the steep downturn caused by the coronavirus pandemic. However, Biden also supports corporate tax increases that would be used to fund some of the additional spending. It is far from certain that they would be enacted given Republican opposition.
Spending and Taxes
Mark Vaselkiv, T. Rowe Price's chief investment officer (CIO) for Fixed Income, believes that Biden is likely to seek additional funding for states and municipalities. "The economy is weakest at the state and local level, where governments need help to mitigate cuts in essential services amid quickly declining revenues," Vaselkiv asserts. This push for funds for localities could help stabilize and support the credit quality of municipal debt for years to come as the economy recovers from the pandemic, he says.
Biden has proposed raising corporate taxes to halve the tax cut enacted by the Tax Cuts and Jobs Act (TCJA) of 2017. Biden's plan involves increasing the corporate income tax rate—currently a flat 21%—to 28%. That would still leave the rate meaningfully lower than the pre‑TCJA rate of 35%. President‑elect Biden would also likely try to boost taxes on the foreign income of US companies and institute a form of alternative minimum tax for corporations. However, Republican opposition could limit or prevent some of these measures to increase taxes.
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