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What to expect from Biden’s first 100 days in office

15 February 2021 Adriaan Pask, CIO at PSG Wealth

It’s a tough time to start a new presidency in the US, given the state of the American economy and the uncertainty that remains regarding Covid-19. But President Joe Biden has been clear in terms of what he hopes to achieve, and this includes tax changes, regulatory changes, and a big push in terms of stimulus.

Stimulus to boost the economy
The US economy is struggling at the moment and we saw a 33% drop in US GDP in the third quarter of 2020. Biden’s plan for reviving the economy revolves around his stimulus plan of $1.9 trillion. If you deconstruct his plan and look at the detail, it is clear that a lot of the effort is aimed at lower income earners who are bearing the brunt of the Covid-19 fallout. Additional cheques for individuals form a key part of it, as well as unemployment benefits – these are typical measures you would expect under relief. Biden’s aim is to make sure that individuals and small businesses make it through to the other side.
As for monetary policy, interest-rate hikes are not expected any time soon. When you are injecting the economy with fiscal stimulus to the extent that Biden envisages, it is very difficult to increase interest rates. And on the other end there is very little room to lower rates further, so they should remain stable.

Tax changes
We expect to see an increase in corporate taxes, as this was a big part of Biden’s campaign, as well as increases to personal income tax at the higher end of earners. We also expect a hike in capital gains tax for individuals making more than $1million per year.

That tax revenue will be put to work to support the lower end of the tax base with aid, and we could see tax cuts on personal income tax on the lower and middle ends. Essentially, the aim is to redistribute some of that wealth.

Regulatory changes
We are expecting to see regulatory changes relating to the environment, consumer protection and labour. There has already been talk of increasing the minimum wage, with Biden wanting to double the minimum wage from where it stands currently up to $15/hour. We are also keeping an eye on the antitrust litigation that’s going on with some of the larger tech companies in the US, and we may see some regulatory changes in this regard.

US-China trade war
The relationship between the US and China turned toxic under Trump, and Biden will have to pick up the pieces. There seem to be two schools of thought on how he should go about this. There’s one camp that says his focus should be on restoring the whole relationship. The other camp believes that a lot of work has been done to add pressure there, and China has retaliated. It’s a very difficult position to be in, trying to reverse some of those measures that have been implemented, but at a minimum we can expect a more diplomatic approach.

Polarisation
The highly divisive nature of the US election mirrored the polarised views we are seeing all over the world. Biden is attempting to address some of this division through the tax amendments to support middle- and lower-income earners. The unequal society in America was not created in one term under Trump, and it will not be reversed in one term under Biden. But making moves in the right direction is incredibly important, and Biden is intent on doing that.

Insights for investors
From a market and investor perspective, we expect to see less turbulence in the months ahead. Yes, the China debate is still up in the air, and uncertainty around Covid-19 remains, but with Biden’s planned stimulus, and stable interest rates, we expect a less volatile period ahead.

Quick Polls

QUESTION

The Budget Speech 2021...

ANSWER

Certainly taxpayer-friendly, with tax increases being kept to a minimum
Realistic and in accordance with my expectation
Is welcomed news and will go a long way to bolster the economy and South Africa
I have mixed feelings… cutbacks and reprioritisations in government spending pose a significant risk and will come at a cost
Oh no! What about our booze and tobacco! Higher sin taxes
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