April 23, 2024
Economy

Trump-Biden Election Could Be Pivotal For The Economy And Your Wallet


Key Takeaways

  • Likely presidential opponents Joe Biden and Donald Trump have very different approaches to public policy, setting up a 2024 election with big implications for the economy and personal finances.
  • The victor in the race will preside over the expiration of many provisions of the Tax Cuts and Jobs Act, deciding whether to extend or expand the bill’s many tax cuts, with Trump more likely to reduce taxes for high income earners.
  • A Biden victory would mean more student loan forgiveness, which Trump opposes. ‘Junk Fees’ and green energy tax credits would be among the other issues on which the candidates have opposing views.

As a presidential race between Joe Biden and Donald Trump grows more and more likely, the two candidates are promising very different approaches to public policy when it comes to money.

After voters in 15 states went to the polls to vote in primary elections on Tuesday, Biden and Trump have moved closer to their respective parties’ nominations to run in the general election in November. The outcome of that race could have a big impact on the economy as well as household budgets. Here are some of the key issues to focus on.

The Tax Cuts and Jobs Act

The incoming president will have to make some of those decisions pretty much immediately. Major portions of the Tax Cuts and Jobs Act—a Trump-era set of tax cuts—are set to expire at the end of 2025. For instance, the top marginal tax rate for high-income earners will rise to 39.6% from 37%. The standard deduction—the amount of your income that doesn’t count for your federal taxes—will be cut by about half. For an individual filer, it would revert to $6,500 and then be adjusted for inflation, down from $14,600 last tax season.

Biden has called for repealing the TCJA tax cuts for the wealthy to reduce the budget deficit, restoring the top marginal tax rate and imposing new taxes on billionaires and people who earn more than $1 million a year.

For his part, Trump has touted the economic benefits of his administration’s signature legislation and has promised “lower taxes” on his campaign website. A Trump victory, especially if Republicans win control of Congress, would increase the chances that the TCJA’s provisions for businesses and high earners would be extended.

Student Loan Forgiveness

Few groups of people will face more dramatically different policies under the two candidates than student loan borrowers. Biden has supported forgiveness of federal student loans, while Trump has fiercely opposed it.

Not only did Biden propose forgiving up to $20,000 for each borrower—an initiative that was struck down by the Supreme Court last summer—but he’s changed the rules for how existing student loan forgiveness programs work, resulting in $138 billion of debt for 3.9 million borrowers being canceled as of February.

Trump has taken the opposite approach. When the Supreme Court’s conservative majority blocked Biden’s forgiveness plan, Trump praised the ruling and said forgiveness was unfair to people who already paid off their loans.

When Trump was last president, the Department of Education opposed efforts by students to have their student debts discharged under “borrower defense” rules that allow people to seek to have their loans forgiven if they were misled by the schools they attended.

Biden’s Campaign Against ‘Junk Fees’

The election will determine whether the Biden Administration’s war on what he calls “junk fees” will continue. Under Biden, regulators have restricted businesses from imposing fees on customers, especially on financial products. On Tuesday, the Consumer Financial Protection Bureau (CFPB) imposed an $8 limit on fees for late credit card payments, which currently average $32. The bureau has also proposed limiting banks from charging overdraft fees to customers who spend more money than the balances in their accounts.

Under Trump, the CFPB—the government’s consumer watchdog—took a much more business-friendly approach, rolling back Obama-era restrictions on payday lending and taking fewer actions against debt collectors.

Green Energy Tax Credits

Biden has signed laws promoting green energy, including a tax credit for buying an electric car worth up to $7,500. For his part, Trump has criticized electric vehicles and said he would put a stop to policies promoting them.

“Now, they want you to give you electric cars. Anybody want to drive for an hour then spend four hours to get a recharge?” Trump said at a speech in Columbus, Ohio last June. “First day in office, I’ll be ending all of that.”

The Big Economic Picture

All of these policies, and others, will have a big impact on the broader economy. In general, a Republican victory could bring lower taxes, especially on high earners and businesses, while a Democratic victory would likely bring higher taxes for those groups.

Republican governance on taxes would bring “somewhat faster economic growth, higher inflation, larger budget deficits, higher Treasury yields and a steeper yield curve, all else equal,” economists at Wells Fargo wrote in a research note.

Should the government remain divided between the two major parties, with each controlling at least one branch of government, the tax outcome would “modestly depress the 2026 outlook for growth, inflation, government borrowing and yields,” they predicted. A Democratic sweep—unlikely given the Senate seats up for contention—would result in tax policy that would set the economy somewhere in between the other two potential outcomes.

The election could affect the economy even before it happens. Economic research has shown that partisan conflict tends to increase during presidential election years, Ryan Sweet, chief economist at Oxford Economics, said in a research note. Historically, heightened partisan conflict—resulting in standoffs and gridlock in the legislature—has had a small but noticeable effect on economic growth, boosting it for a short time but decreasing it over the long run, Sweet wrote.

“The initial increase in monthly GDP around the shock from political conflict could be attributed to the idea that gridlock is good for stability in fiscal policy, but over time, it becomes corrosive for the economy–brinkmanship over ‘must-pass’ legislation unnerves consumers and businesses alike,” he wrote. 



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