As we head toward the end of a contentious election season, many people are wondering how their finances might be impacted if Joe Biden wins the upcoming presidential election.
One thing to keep in mind as you plan your money moves in the event of a Biden victory in 2020 is that the president doesn’t actually make laws. In fact, for substantial changes to be made, Congress would need to legislate.
However, presidents can still push for an agenda. So let’s take a look at some of Biden’s proposed policies to see what you might expect if he wins.
10 ways a Biden presidential victory could impact your finances
Health care and prescription drug costs
Biden calls for an end to what he calls “abuse of power by prescription drug corporations.” He points out that drug companies don’t have to negotiate with Medicare to be considered part of the program. Even though hospitals and other health care providers have to negotiate with Medicare (much as they would with any other insurer), drug companies are an exception. Given that it’s such a large program, forcing drug companies to negotiate with Medicare could potentially lower prescription costs for many Americans.
Additionally, Biden’s plan calls for allowing Americans to order their prescriptions from other countries. If this became an option, it would force U.S. drugmakers to engage in competitive pricing, something they haven’t had to do much of in the past. With the ability to comparison shop for prescriptions, many Americans could potentially save on their health care costs.
For most Americans, there won’t be much of a change in terms of income tax, so tax planning won’t change for a lot of people. Although Biden plans to return the top marginal tax rate to 39.6%, the level it was at prior to the 2017 tax reform law, most Americans aren’t going to see substantial changes. In fact, income taxes likely won’t change at all for anyone making less than $400,000 per year.
Those who make more could end up paying higher taxes, though, as Biden’s plan calls for caps to itemized deductions and for getting rid of the 20% qualified business income deduction for the top income earners. However, again, those changes would mostly impact those making at least $400,000 per year — not many middle-class Americans fall into that category.
Capital gains taxes
Biden’s plan calls for raising the capital gains tax on top income earners. Those making at least $1 million per year would end up paying 39.6% on any of their capital gains. Once again, the tax impact of this plan on middle-class Americans would likely be minimal.
Even though about 52% of families have some investment in the stock market, according to the Pew Research Center, many have tax-advantaged retirement plans like 401(k)s and IRAs, which don’t result in capital gains taxes. Only about 14% of families are actually directly invested in the stock market, and most don’t have the assets in the market to see a huge impact from a change to capital gains taxes.
The stock market is where some Americans might see some short-term negative impacts to their portfolios in the event of a November Biden victory. However, there’s a good chance those short-term losses would be limited.
First, some predict a large sell-off in the stock market in the event of higher capital gains taxes and a Biden win. However, the sell-off would likely come just before any potential higher taxes kicked in as investors tried to capture gains at a lower tax rate. This would likely only happen if Congress were on board with Biden’s plan to increase the capital gains tax and actually passed legislation to do so.
Another consideration is that stocks might initially fall after a Biden victory in November, but in the long-term, a Democratic victory is likely to result in sustained gains for the stock market. According to analysis, during times when a Democrat is in the stock market, it returns about 9% annually, as compared to about 6% annually during a Republican administration.
Regardless of who wins in November, most of this stock market volatility results in short-term movements. Although you might see your portfolio lose ground after the election, over time the stock market is likely to continue its higher trend. The stock market typically trends higher and has yet to lose in any 20-year period. So instead of selling during a potential market crash after the presidential election, consider that you might actually come out ahead in the long run.
Child care tax credit
Under Biden’s proposed plan, you could potentially receive an additional tax credit if you pay for child care. This includes up to $8,000 for one child and up to $16,000 for two or more children. These tax credits would help reimburse a portion of child care expenses. Families making between $125,000 and $400,000 a year would get a partial credit. However, most families with children under the age of 13 would qualify for some version of this credit, which could help with family budgeting.
Health care tax credit
In addition to adding a public health care option for Americans, Biden would like to increase the value of the tax credit used under the Affordable Care Act to help cover the costs of health insurance. On top of that, Biden calls to cap the cost of insurance purchased on an ACA marketplace to 8.5% of income. For those struggling to cover health insurance costs, this could potentially provide some relief. It might also reduce the number of people drowning in debt due to medical bills.
Long-term care tax credit
One of the issues many Americans face is the high cost of long-term care. To help make this cost more manageable, Biden’s plan calls for a tax credit of up to $5,000 for informal caregivers. The goal is to help to relieve some of the burden that comes with providing care to someone else.
Earned income tax credit
Right now, the earned income tax credit is available only to those 65 and younger. However, with Americans retiring later and working longer, including at low-wage jobs, this can negatively impact many seniors. Biden is proposing that those over 65 also have access to the earned income tax credit. This could provide a measure of budget relief to many older people who are struggling.
Once again, Biden’s plan calls for those earning more than $400,000 to pay more in Social Security taxes. Right now, there is a cap on the earnings subject to the Social Security tax. For 2020, only the first $137,700 in income is subject to Social Security taxes. However, Biden wants to reinstate Social Security taxes for those earning more than $400,000 per year.
At first, there wouldn’t be Social Security taxes levied on income between $137,700 and $400,000. However, the IRS changes the income cap each year. Over time, as the income cap increases, the gap will close, and Social Security taxes will be taken from all income.
By requiring people to pay Social Security taxes on more of their income, it would shore up the program and result in the ability to continue paying benefits into the future, reducing concerns that the Social Security fund will be depleted before today’s younger workers can claim their benefits.
Paid leave for workers and families during COVID
Many Americans have been furloughed or laid off, or have had their hours reduced due to the COVID-19 pandemic. To help alleviate this burden, Biden calls for paid leave for those impacted by the coronavirus, as well as additional aid for small businesses. If you’ve been hit hard by the COVID-19 pandemic, additional aid might help you keep your household finances afloat.
Although some of these moves could potentially alleviate the burden for many Americans, it’s important to note that these are just policy suggestions made by Biden. In the end, none of this can come to fruition unless Congress takes action to make these things happen. So although we make a big deal of a presidential election, the reality is that there’s a lot that must be done for Congress, especially when it comes to the laws, regulations, and policies that impact our pocketbooks. Although you can plan for potential changes to laws, in general, it’s best to learn how to manage your money effectively and take steps to protect your finances, no matter who’s in charge.
Editor's note: The author of this piece is currently running for elected office in Idaho.
Connect with paying families looking for care and service-related work. Available jobs include child care, tutoring, senior care, pet care, and housekeeping.
Free 3-class intro teaches you how to launch a bookkeeping business
Join a community of 20M+ lifetime members who have been paid $76 million to date.