US election 2020: The candidates and the economy
Whether it’s a second term for Trump or third time lucky for Biden, both candidates are now fighting their biggest ever battle
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A taxing issue
The corporate tax rate proposed by Biden, up from Trump’s 21%
One of President Trump’s most significant moves was cutting the headline tax on corporate profits in the US to 21%, from 35%. This has allowed companies to keep a greater proportion of their earnings, providing capital to fund development and employ more people. Companies have used some of the extra cash to fund share buybacks, which has been a factor behind the inexorable rise in US share prices since 2016.
Biden plans to raise it again by 7%, taking it to 28%. Any rise won’t be welcomed by business, but companies would still pay 7% less than four years ago. He also plans to target ‘Big Tech’ companies that put profit centres offshore to minimise domestic tax exposure, and to increase capital gains tax, which tends to be most keenly felt by the wealthy.
Trump’s plans are a little vaguer, but he has advocated further tax cuts and increased spending. He‘s also said he would extend many of the tax reductions introduced in his 2017 Tax Cut and Jobs Act, some of which are currently scheduled to end over the next four years.
Making a stand on minimum wage
The hourly minimum wage proposed by Biden, double its current level
Joe Biden proposes doubling the US minimum wage from $7.50 an hour to around $15. It’s worth noting that many US states already have a higher minimum in place – $11.80 in New York, $12 in California and £13 Washington, for example – so the overall impact may not be as substantial as the headline figure suggests.
That said, it would give a pay rise to the 1.6 million workers who earn the federal minimum, as well as many more earning their current state minimum.
As Joe Aylott says, “While higher wage bills may take a bite out of profits – potentially bad for markets – their workers would have more money to spend – potentially good for GDP.
“Again, Biden’s plan comes down to redistribution.”
THE PROPOSED DEADLINE FROM THE TRUMP ADMINISTRATION FOR CHINESE FIRMS LISTED IN THE US TO COMPLY WITH NEW AUDITING RULES
One topic important to global economic growth where you can barely tell the candidates apart is that of foreign policy on China.
If you want the American people to vote for you, it’ll do you no good to go easy on China. Spying accusations and the coronavirus pandemic have only worsened public sentiment.
Both candidates therefore talk tough on US-China relations. Trump’s bellicose pronouncements are well known, but Biden has also taken a confrontational stance, calling president Xi Jinping “a thug” during the Democratic nomination race.
However, there is a key difference in how the candidates would deal with the issue.
Joe explains, “Trump has a much more isolationist approach, even putting a question mark over trade links with allies such as Europe. Biden, on the other hand, is more likely to try to improve relations with other global powers – again, such as Europe – to get their support in the fight against China.”
He adds, “Biden’s more measured approach could potentially build bridges around the world on trade, which could boost the global economy. But Trump’s standalone stance could produce a better deal for the country – and a prosperous US is also good for the world, such is its power and influence.”
Keeping a close eye on developments
At Coutts we’re carefully monitoring all policy announcements on both sides of the US election, and analysing their potential impact on the economy and markets. This means we’ll be ready to act if necessary after the votes are counted. It’s just one element in a broader mix of factors we consider when analysing the long-term economic prospects.
To find out more about our views on this and other issues important to investors, visit our insight page or speak to your private banker.
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