U.S. Right Now
Right now, the U.S. is the place for big businesses to be in terms of tax rates and economic growth with Indexes like the DJI and S&P 500 at all time highs. One might say that they are unaffected by the taxes that Biden will be imposing because they are under the $400k amount of income that has a tax jump. This might seem true, however by removing the tax cuts, we will all be effected. Some examples of these effects are big businesses losing profits here in the U.S. Because corporate income is cut today (from 35% to 21%), businesses have had massively increased profits from the tax cuts and have used these to create jobs. By removing the tax cut we might see income be taxed upwards of 35% for big corporations. With these taxes raised, it could very well drive these businesses out of the U.S. in order to increase their profits. Another effect of a Biden presidency would be the implementation of free trade. Free trade will end up increasing our imports from foreign nations. Another thing we will need to worry about is increased prices for oil. One positive however is the impact on the renewable energy and cannabis industry in the U.S. Under a Biden Presidency, renewable energy and cannabis are set to gain.
What does removing the tax cuts mean for us?
By removing the tax cuts, the U.S. becomes a less desirable place for manufacturers and big corporations. With it being less desirable because of decreased profits, it could hinder growth for corporations throughout the U.S. If these big businesses start to pack up and leave because of the negative growth impact, so do jobs. With these jobs leaving, the U.S. unemployment, which recently hit a near record low of 3.5%, would jump, thus causing our U.S. markets to tumble and leaving us with large gaps in household income equality. Another impact for the unemployment rate that removing the tax cuts will have for the U.S. is that the big companies that have been saving more of their income due to tax cuts will no longer be able to use this excess cash to create more jobs around the U.S. By losing this cash we can expect to see a decrease in the amount of new jobs we see on the market.
What does the implementation of free trade for America mean for us?
The Implementation of free trade for the U.S. means that we will be gaining on our imports. Why is this bad one might ask? Well, by implementing free trade, we expose ourselves to more and more outsourcing of product creation to other companies whose labor costs are much cheaper than here in the U.S. By doing this, we are once again putting American jobs at risk. Manufacturing jobs account for 8.51% of the Workforce according to the 2018 data from the National Association of Manufacturers. According to Census.gov, in 2018 there were about 12 million jobs in the U.S. in manufacturing which was in the top 5 most employed. By outsourcing a lot of the U.S. manufacturing, this causes a lot of these jobs to possibly be terminated.
The Oil supply
Under a Biden Presidency, we are set to see a rather large increase in our oil supply. With this new surplus of oil, economists think in the short term, this could lead to an oil price increase and we could see our gas prices rise. However, in the long run we are likely to see a decreased demand for the product due to environmental impacts of fossil fuels. Right now we have seen oil futures crash as the COVID pandemic has brought decreased oil demand due to travel uncertainties.
Renewable energy and the Cannabis industry
What does a Biden presidency mean for renewable energy? Under a Biden Presidency, we are set to see increases in the usage of renewable energy and an increase in research developing the industry. We will see a larger shift in the usage of wind, solar, and other forms of renewable energy if Biden takes the office which will end up in a heavy gain for renewable energy stocks on Wall Street, and a steady decline for the fossil fuel industry.
Now what about the cannabis industry and how might Biden impact that? Biden and Harris have set out to decriminalize marijuana. They plan to also let states determine their own policies regarding the drug. This is big for big cannabis companies such as Aurora Cannabis and Curaleaf (MKT Cap $4.8B) in terms of growth in their potential market. By legalizing marijuana, Biden and Harris hope to lower the crime associated with marijuana.
Alex Cornwell
1/14/2020
Photo from WSJ