Outlook 2021 | Coastal Breeze NewsJanuary 25, 2021
“Republicans buy sneakers, too.” Michael Jordan, retired professional basketball player.
Question: What might we expect in the early stages of 2021 regarding changes to taxes, climate regulations, and consumer protection measures with the new administration?
Answer: Before we get started, I’d like to share a clever post from a friend highlighting the irony of obligatory disclaimers when speaking about the future: “Merry Christmas from your lawyer: I wish you a reasonably Merry Christmas (or festive period), that is in no way guaranteed, or limited to a reasonably Happy New Year (meaning the twelve (12) months from the date hereof).” You get the idea, there are no guarantees and most everything is subject to change.
Assuming a peaceful transition of power to the Biden Administration on Inauguration Day, January 20, 2021, the Biden administration’s economic policy outlook for the next year, while greatly influenced by COVID-19, will emphasize advancement of their priorities in the areas of energy and the environment, manufacturing, trade, and consumer protections.
Policy changes will likely be tempered by the slim Democratic majority margins in the House and Senate, but Democrats do have tools to enact noteworthy policies in the areas of taxation and spending. In the near term, policy uncertainty could contribute to increased financial market uncertainty and volatility. Longer term, the recovery-supporting measures and an increases in federal spending are expected to continue supporting positive market sentiment.
The first 100 days and beyond
The Democratic agenda is apt to begin with additional fiscal stimulus and the confirmation of key Biden appointees. Later this year, a budget reconciliation bill and tax changes are the probable focus. Questions and debate center on whether Democrats will start with economic items, thought to be a positive market influence, before tackling tax and regulatory changes, which can potentially be considered as a market negative. It’s important not to understate how impactful Senate control will be for control of the Senate agenda.
Budget and Taxes
With a narrow House majority and the need to get every Senator on board before passage of budget reconciliation and tax changes, this debate is likely to have false starts and breakdowns in negotiations. However, with reconciliation the only pathway for legislation with a simple majority, we expect Democrats to do everything possible to find a final compromise. The question of how to pay for increased spending on items like infrastructure, paid sick leave and child care, leads to tax increase considerations. Biden’s tax plan calls for raising the corporate tax rate to 28% and tightening tax rules on overseas income.
There is a big debate in D.C. about when to expect potential tax changes. Legislation isn’t allowed to be retroactive, with…