HOW DOES THE PRESIDENTIAL ELECTION AFFECT THE ECONOMY

September 30, 2020 5:32 pm Published by Leave your thoughts

The political event of the year will be the presidential election on 3 November. The race for the White House has come down to President Trump and Vice President Mike Pence versus former Vice President Joe Biden and his vice presidential nominee, California Sen. Kamala Harris. While initially Biden and Trump’s battleground seemed to be issues of trade and middle class growth, now the candidates are focused on how the country will navigate the economic downturn created by the global COVID-19 pandemic.

 It is worth bearing in mind that the impact that any president can have on the economy and market depends on their ability to enact legislation. To be able to put in place more controversial policies, control of both the House of Representatives and the Senate is necessary and both of these races currently look tight. In a strong showing for the Republicans, there is a reasonable chance that they would be able to win back control of the House in November. For the Democrats, their chances of winning back the Senate appear slimmer, with only 35 of the 100 Senate seats up for re-election this year. If the status quo of political gridlock persists, it may comfort investors to know that it could act as a considerable restraint on some of the more radical proposals on both sides. Regardless of the election outcome, it seems unlikely that the trade conflict with China will be fully resolved – surveys suggest that there remains widespread support among the US electorate to address unfair trade practices.

The outcome of the 2020 presidential election will not only make news, but it may influence the future of health care — no matter which candidate claims victory. From payments to policies, to prescriptions and the ongoing rising cost of care, health care is one of the hottest items on every candidate’s ticket, with each proposing a distinct approach to keeping Americans healthy and costs down.  With over 20 million people able to gain insurance through the ACA, both through the creation of public exchanges and the expansion of Medicaid, some think it’s the right direction to ensure that the insured population continues to grow. The ACA created subsidies to reduce monthly premiums and out-of-pocket costs for lower income consumers purchasing coverage through the Exchange. Additionally, the ACA ensures that people with pre-existing conditions receive coverage, has improved the quality of individual market plans by mandating coverage of “essential health benefits” and zero-cost preventive services, and allows young adults to stay on their parents’ plan up to the age of 26. Revisions to the Act include reviving the individual mandate and increasing federal subsidies so more Americans can afford coverage.

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With the COVID-19 crisis shaking the U.S. economy to its core, the role of government in the economy is front and center once again. Exactly how much responsibility the U.S. government has to help those who have been hurt by the pandemic, and who to prioritize helping, has been a huge bone of contention in creating the first three stimulus and relief packages. Congressional Republicans have largely pushed for more aid for businesses, believing that shoring them up will help people by broadly strengthening the economy, while congressional Democrats have pushed for more individual aid such as increased unemployment benefits to ensure families can afford day-to-day necessities and consumer spending stays strong. Between the president’s veto and the role of the vice president as tiebreaker in the Senate, which is closely split between the parties, the role of government in addressing the COVID-19 crisis, and the economy more broadly, will be substantially shaped by who the winner of the 2020 election is.

HEALTH CARE – Medicare for All proposals call for the repeal of the ACA and replace it with rapid, nationalized health care for all Americans. Instead of co-pays and deductibles, Medicare for All would be funded instead by increased taxes on employers and certain segments of the public and pay for all health care through a “single-payer” (the federal government) system. Dental and vision would be included as well. The role of private insurers would b e limited only to niche plans covering elective and other non-essential medical procedures.

HOUSING – With the eviction moratorium and unemployment expansion provisions of the CARES Act having lapsed in late July, major factors preventing millions of families from losing their homes across the U.S. have disappeared. According to Emily Benfer, the chair of the American Bar Association’s Task Force Committee on Eviction, upwards of 28 million people across the U.S. may be facing eviction by the end of September. Compare this to the 10 million people evicted throughout the 2008 foreclosure crisis and you get an idea of the size of the looming disaster.

President Trump has ordered the Department of the Treasury, the Department of Housing and Urban Development, and the Federal Housing Financing Agency (FHFA) which oversees Fannie Mae and Freddie Mac to find ways to provide assistance to renters and homeowners to prevent eviction or foreclosure. However, these instructions do not suggest any specific methods or remedies, nor have they produced any concrete policies as of yet.3

TAXES – One of, if not the largest pieces of legislation passed under President Trump’s presidency was the 2017 Tax Cuts and Jobs Act. The legislation consisted of a large, permanent tax cut for corporations, and temporary cuts to individual taxes that will expire in 2025. These cut individual taxes largely for higher-income Americans, but introduced at least some level of tax cuts across the board. A big winner of the tax cuts were investors, as most of the corporate money repatriated under the law went to share repurchases and dividends, rather than wage increases or investment, mirroring the effects of the repatriation holiday in 2004.8 Joe Biden has proposed a tax plan that would raise taxes for wealthy Americans and tax long term capital gains at the same rate as normal income, going in the complete opposite direction as Trump’s tax plan. Therefore, the overall direction of tax policy in America could be at play this election.

INTEREST RATES AND FINANCIAL MARKETS – Another major economic issue at play is the role and purpose of the Federal Reserve. The Federal Reserve has introduced a large number of new monetary stimulus measures to try and prevent the COVID-19 crisis from causing a liquidity crisis.  As the stock market is back to record highs while the U.S. economy is still deep in recession, the gap between the stock market and the rest of the economy is as wide, or wider, than ever. As only about half of Americans own stocks, that gap also increases wealth and income inequality, also at near record levels. Numerous policies could affect investing going forward, from how candidates change capital gains taxes (see more below) to who the nominees nominate to run the SEC.

The uncertainty of an election can also imply higher risk in certain stock prices, especially those with greater impact to electoral outcomes. This can cause greater volatility in the weeks prior to election day, though, interestingly, the markets can run up in the days immediately prior to an election, even before the outcome is known. It’s unclear if this is due to the election itself or more a manifestation of the turn of the month effect, where the first few days of each month tend to enjoy superior stock returns.

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