After what seems like years of campaigning for the 2020 election, we’re just weeks away from November 3. President Donald Trump and Democratic nominee Joe Biden have presented their economic platforms, but voters are split over which ticket they believe will be better for their personal finances, according to a recent Bankrate survey.
“Asked specifically about personal finances, 39 percent of Americans said the Joe Biden/Kamala Harris ticket would be best, while 35 percent said Donald Trump/Mike Pence,” says Mark Hamrick, Bankrate senior economic analyst. “About 15 percent said they didn’t know and 11 percent said neither one.”
But “personal finances” encompasses a lot of moving parts – the stock market, the jobs situation, taxes, health care and many other issues. Bankrate spoke with financial experts to get their take on which president would likely be better for your personal finances and why.
Where the economy is now
Any president will have to deal with a difficult situation come Inauguration Day in January 2021. The economy is in shambles following the emergence of COVID-19, and unemployment has soared. Many Americans are hurting and emergency savings have been cut to the bone.
In response, the federal government has unleashed massive amounts of spending to help restore the economy. Meanwhile, the Federal Reserve has pumped money into the economy by lowering interest rates and engaging in huge rounds of securities buying and lending. Those actions have spurred some confidence among investors, who have pushed stocks to all-time highs recently. However, the returns for savers have plummeted, hurting the usefulness of those safe accounts.
While a president can shape a lot of things, these broader issues are largely beyond the president. Regardless of who’s elected, no one expects rates to rise anytime soon, because the economy will likely remain weak indefinitely even with increased spending. The choice of president will also likely have little effect on how fast a coronavirus vaccine can be developed.
But in other areas – taxes, jobs and federal spending – the president can do a lot to mitigate this crisis. As to how Trump and Biden will proceed if they’re elected, Americans should expect more of what they’ve already seen from both presidential candidates.
“Trump has a clear and present record, which you can bet will be sustained and expanded, should he win his re-election bid,” says Paul Miller, managing partner at accountancy Miller & Co. in the New York City area. He points out that Biden will “resurrect” some of the approach that was used in the previous Democratic administration under President Barack Obama.
Here’s how each candidate stacks up on major financial issues that matter to your wallet.
Let’s start with taxes, which is one of the first areas Americans will cite as key to their finances.
“The election could have an important bearing on personal finances, principally through changes in tax rules but also through support of household cash flow,” says Gary Schlossberg, global strategist at the Wells Fargo Investment Institute.
Biden has proposed a tax increase at the highest bracket from 37 percent to 39.6 percent, and has stated that he has no intention of raising income taxes on any family making less than $400,000 a year. That increase would hit higher-income families — but only the top few percent of Americans — leaving the middle class and working class untouched by higher levies.
Biden has also proposed raising capital gains and dividend taxes on high earners (those with more than $1 million in income) to the highest ordinary income rate of 39.6 percent. Again, this tax would fall largely on very high income earners.
This increase might reduce turnover in the stock market, possibly lowering demand for stocks and affecting returns.
Trump’s tax platform is less clear on details, though he’s expressed support for middle-class tax cuts and lower capital gains rates. It’s not clear how tax cuts on the middle class would work, but Trump has suggested that the high end of long-term capital gains taxes might drop from 20 percent to 15 percent.
Trump’s capital gains plan would likely increase turnover in stocks, says Schlossberg, potentially raising demand for the securities.
So while Biden is proposing higher personal taxes, they would fall on only the highest earners. In contrast, Trump’s plan is somewhat unclear, though he’s been consistently in favor of lower taxes, especially for higher earners.
The stock market
The stock market is impacted by many factors, but the president has a lot of influence over only some of them, including tax policy and pro-growth initiatives. Let’s start with business taxes.
In addition to raising taxes on high-income individuals, Biden has also proposed reversing cuts to the corporate tax rate under Trump’s 2017 tax overhaul, which dropped rates from 28 percent to 21 percent.
“As for the reversal of Trump’s tax cuts, I think this is the most disastrous policy for investors and big tech companies,” says Danielle Shay Gum, director of options trading at Simpler Trading.
“The success of big tech is partly due to tax cuts, which in turn caused stock buybacks, which in turn caused stock prices to fly – but at the same time, it’s due to pro-business policies that support economic growth.”
Trump’s push for a lower capital gains tax rate, if enacted, would likely give the market some juice.
“The most important impact of a Biden win for investors would be a major shift in … where they invest long term, because of the stark contrast in how his policies will impact various sectors and industry groups versus the Trump presidency,” Gum says.
For example, Gum points to Biden’s support for some Green New Deal policies, which could ignite interest in related stocks, or in ESG (environmental, social and governance) stocks, which may be impacted by policies that promote various social values. She also suggests that recent high-flying stocks that have benefited from coronavirus shutdowns may continue to do so if Biden wins, because the candidate has expressed openness for stricter national shutdowns.
Gum suggests that short-term traders might look for choppiness going into the election, but that it won’t be a big deal for long-term traders. She thinks that potential regulations under Biden might hit some of the largest stocks – Facebook, Amazon, Alphabet and others. Because these stocks make up such a large portion of the indexes, the indexes are likely to tumble significantly.
Gum says that Trump “has been very vocal towards loose monetary policy that supports the economy and business expansion.” While she doesn’t think this will change much under Biden, it “is an unknown factor, and could potentially cause a big upheaval in the market.”
A net positive for Biden could be the end of the trade war with China and the pressure it’s put on American industrial firms. Gum notes that it could be a huge benefit to agriculture companies.
“In the past 100 years, the stock market fares better under Democrats,” Miller says. “At the same time, the stock market doesn’t like change and may react negatively at first, should the Democrats prevail over the Republicans for the country’s highest office.”
So, again, a knee jerk reaction from the market means little to long-term investors.
“The stock market may stagnate somewhat in the run-up to November 3, as investors play wait-and-see,” Miller says. “But markets will likely rebound with either candidate.”
And regardless of who’s in the nation’s top office, low interest rates will be here for the foreseeable future.
“Risk assets will continue to be supported by ultra-low interest rates as long as inflation, inflation expectations and inflation-sensitive longer-term rates are suppressed,” says Schlossberg, pointing to stocks and gold in particular as likely winners.
Direct federal spending
Americans’ personal finances also depend a lot on how much assistance they’re receiving from the government, especially as part of COVID-19 relief efforts. With the economy a mess and high levels of unemployment for extended periods, many Americans need help badly.
Trump has already signed a series of executive orders to get relief to struggling Americans. These include an order temporarily deferring the payroll tax on American workers, though there are still some questions around how the payroll tax deferral and unemployment benefits will be executed.
Of course, federal spending has already skyrocketed trillions of dollars this year, as Congress passed emergency funding to help Americans in the wake of the coronavirus shutdown.
Both candidates have already stated they are in favor of more support, Schlossberg says.
“Proposals by both candidates for direct income support, enhanced unemployment insurance benefits and (in the president’s case) reduced payroll taxes would have the effect of boosting household cash flow and funds available for saving and investing,” he says.
However, with a Democratic president in office, spending may increase even more than under Trump, and that could have additional effects on the finances of states and cities, too. More deficit spending would generally be a net positive for jobs as well.
“The Democrats have shown a greater willingness to provide sizable, direct assistance to state and local government as a means of shoring up finances and muni credit quality, a plus in the outlook for investment returns,” Schlossberg says.
Says Gum: “A Biden presidency would likely lead to more stimulus, more taxes and social programs, which would equal more inflation.”
In the area of health care, there are two related issues: the fight against COVID-19 and access to health care. Both have a real and significant impact on Americans’ personal finances.
Trump’s efforts to stem the pandemic have not won him much support from voters.
Bankrate’s survey found that 39 percent of Americans were less likely to vote for Trump as a result of his response to the crisis (that includes 33.59 percent who were “much less likely” and 5.63 percent who were “somewhat less likely.”) Only 26 percent said they were more likely. About 25 percent said they were neither more nor less likely, and 11 percent said they didn’t know.
Americans could reasonably expect Trump to proceed on the course he’s already plotted to deal with the pandemic.
In contrast, Biden says he will take a more science-based approach, establishing test-and-trace programs and developing science-based treatments. But he’s also stated that he may opt to shut down the economy, if needed and advised to do so by scientists, to tame the pandemic.
As far as access to health care, the two candidates have shown a clear difference.
On multiple occasions, Trump has tried to abolish the Affordable Care Act (ACA) and continues to try to do so.
“Congress has stopped short of supporting that move, as the ACA has allowed many Americans to afford health insurance, keeping them off public doles,” Miller says. “How much you have to pay for your health care plays a significant role in your personal finances.”
In contrast, Biden has said that he will defend the ACA and even extend it, in part through subsidies. With more of the costs of health care covered, Americans may be left with higher household income to spend or save.
How should Americans protect their finances?
Regardless of who wins the presidency in November, unemployment will likely remain elevated for a while, and the economy is expected to face continued difficulties. But the key is to prepare yourself to endure any challenges.
If you’re an investor, that might mean sticking to your long-term plan, despite the market’s moves.
“I expect market volatility and reshuffling during and after the election, but the dust will clear and markets will survive, and surge again – just maybe not as much as they have during Trump’s tax cut and post-COVID crash eras,” Gum says.
And even if you don’t invest, you need to prepare carefully.
“History shows that no matter how bad your personal financial situation looks currently, there’s a good chance that you will recover with the rest of the country as long as you don’t panic, can keep working and continue to save as if you have a future – because you do,” Miller says.
Miller offers a piece of advice that holds true in any climate: “Stay as close to your financial plan as you can, even as the politics, the politicians and the policies change.”