Democratic Sweep Sets Stage for $2,000 Stimulus Checks and Higher Taxes
Democrats are set to take control of the U.S. Senate, House and presidency, paving the way for Joe Biden to bring his legislative agenda to life and reshape the American economy.
Following runoff elections in Georgia this week, the Democrats and Republicans will each have 50 votes in the Senate. The even split would give Democratic Vice President Kamala Harris the tiebreaking vote on some bills, but centrists like West Virginia’s Joe Manchin could break ranks and derail some progressive policies. What’s more, some laws need 60 votes to pass.
Biden was recognized by Congress as the next president early Thursday following a day of violence at the U.S. Capitol when pro-Donald Trump mobs breached police lines and entered the building. Here are some of the key issues related to personal finances that Biden and the Democrats are likely to take up once they formally assume power.
$2,000 Stimulus Checks
Putting money directly in people’s wallets as a response to the financial fallout from the coronavirus crisis will be Biden’s top priority as he begins his first term. While campaigning in Georgia before the runoff elections, he vowed that $2,000 stimulus checks would be sent out “immediately” if Democrats won the state.
Democrat Raphael Warnock, who defeated Republican Kelly Loeffler in Georgia for a Senate seat this week, said that getting the checks approved would be his first priority upon arriving in Washington. “We ought to pass the $2,000 stimulus relief and giveordinary struggling people who are just literally trying to keep their head above water what they need, so that we can begin to get the economy going again,” he said on CNN Wednesday.
The fastest way for Democrats to pass $2,000 stimulus checks would be to bring the bill to the Senate floor for a vote, something that Republican Majority Leader Mitch McConnell blocked in December. While the bill would need support from 60 Senators in order to bypassa filibuster, some Republicans have already publicly signaled they would be on board.
Still, lawmakers might pare back the scope of the payments to ease concerns thathigh-earners not affected by the pandemic would get sizeable payouts. Unemployment benefits that are set to expire in mid-March would likely get extended, while states would receive additional funding for Covid-19 vaccine rollout and testing.
Goldman Sachs Group Inc.raised its growth forecasts for the U.S. this year, predicting that the economy would expand 6.4% this year, versus the 5.9% it previously projected. The increase was driven by expectations that Biden will be able to deliver a fiscal stimulus package of $750 billion this quarter, $300 billion of which will be in the form of checks to households. The slow pace of Covid-19 vaccinations may still slow the spending boost, the bank cautioned.
While campaigning for the White House, Biden vowed to increase income taxes, capital gains taxes and payroll taxes for people making more than $400,000 a year, as well as for corporations. He promised to repeal Trump’s 2017 Tax Cuts and Jobs Act, which might affect middle income earners who saw some benefits from that bill.
Those plans might be harder to bring to fruition, however, because Biden would ordinarily need 60 votes in the Senate to pass them. While some Republicans might back $2,000 stimulus check, they are more likely to back tax cuts — not hikes. Biden could resort to a loophole in the filibuster known as thebudget reconciliation process, which allows for expedited consideration of certain legislations, a loophole the GOP used in 2017 to pass Trump’s tax law with a majority vote.
Under the budget reconciliation process, only a simple 51-50 majority is needed to pass a bill, but its use is limited to once per financial year. Biden’s administration will have two chances to wield it in 2020, because Congress never adopted a budget for the current fiscal year.
Biden’s proposed changes would raise tax rates on those making over $400,000 to 39.6% from 37%. The Tax Foundation estimates that by 2021, if the plan were enacted, thetop 1% of taxpayers would see their after-tax income reduced by 11.3% and the top 5% would see it shrink by 1.3%. Those in the 90th to 95th percentile would see their after-tax incomes reduced by 0.2%.
“I do think there are going to be some benefits for those lower on the income scale and it’s really going to hurt those at the top,” said Bill Schwartz, managing director at Wealthspire Advisors. But he added that it’s difficult to give financial advice based on the election results, because Biden’s narrow majorities make it hard to predict which policies get enacted.
“I don’t think it’s going to be the status quo,” Schwartz said. “I don’t think even Biden knows. It’s going to be a political free-for-all to get anything passed.”
The president-elect has called for taxing capital gains and dividends at an ordinary income tax rate of 39.6% for those making more than $1 million.
Democrats and Republicans disagree on several aspects of how the federal government should approach access to health care, and even some centrist Democrats are against a major expansion of government-funded health care.
But one point of agreement between the two parties is tackling rising drug prices — and that may find bipartisan support and provide substantial relief to the wallets of Americans across the country.
Biden has said he wants to ensure that no American buying insurance in the individual marketplace pays more than 8.5% of their annual income on health care. That could mean potentially hundreds of dollars of savings a month, but could also damage the employer-sponsored health insurance market. Biden has proposed a public option for those who can’t afford private coverage and would lower the Medicare eligibility age to 60 from 65.
Biden has already faced increased pressure by members of his own party to tackle some of the nation’s $1.6 trillion in student debt.
Democrats have urged him to bypass Congress and act through his own executive authority, but Biden has indicated that he doesn’t plan to act unilaterally. With Republican support for student loan forgiveness virtually non-existent, and even some moderate Democrats opposing it, the issue may not come to the Senate floor even if it’s held by the Democrats.
Biden has proposed a plan to make two- and four-year public colleges free for families that earn less than $125,000. He also supports canceling federal student debt for students from undergraduate universities and from private historically Black colleges and universities for the same income bracket.
Biden has pledged to raise the U.S. minimum wage to $15 an hour and that would require Congress’s help. He’ll need 60 votes in the Senate for the measure to pass, so will have to persuade at least some Republicans to get on board with the proposal.
His plan to grow U.S. employment include $400 billion for manufacturing and $300 billion for research and development, which he says could create 5 million jobs on top of those lost to the coronavirus outbreak.
While Biden has not attached a time-frame to his plan, he would face pressure to achieve it by the end of his first term.
— With assistance by Ben Steverman, and Laura Davison
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