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August 27, 2020

Trump vs. Biden: A Tale of Two Rigidities 
Michael Hicks

With less than 70 days until the Presidential Election, 2020’s tumultuous events have left many feeling like America has been pushed off a cliff. Some of us are optimistic, some are worried, and some  are experiencing emotions like a wordless aesthetic, an art piece on the wall that you once gazed at, impressed and taken when it was new, that becomes banal over the course of its hardening familiarity. In other words: Many of us feel desensitized, exasperated, or numb.

Regardless of where you land on the political spectrum, this is a monumental election. Despite what you may think about the current administration, Wall Street has been favorable to President Trump and his instantiated storehouse of “my way or the highway” gumption on regulations and taxes. However, of all the reasons to vote for Donald Trump or Joe Biden this November, one that does not hold much water is what you think the election will mean for your portfolio and the stock market.

Of course, we can make reasonable extrapolations based on their respective policies for taxes, infrastructure, health care, trade, and more. Still, it isn’t easy to know what the outcome will mean for the stock market. Since economic behavior and political views are not inextricably linked, let us unpack and compare what a Trump re-election vs. a Biden Presidency would look like and the potential effects on your portfolio and retirement.


In November 2017, Trump and a Republican Congress introduced the Tax Cuts Jobs Act of 2017. The goals of the TCJA were simple: tax relief for middle-income families, simplification for individuals, and economic growth. While many Americans have benefited, individual tax rates are scheduled to sunset at the end of 2025; thereby, returning rates to the prior 2017 levels. Biden and the Democrats in Congress would likely reverse some of the TCJA changes, particularly for wealthy Americans.

While Biden has suggested returning the top marginal tax rate to the Pre-TCJA rate of 39.6% for income over $400,000, he has also gone on record saying those earning less than $400,000 will see no changes.

This is good news for those who plan to continue executing Roth conversions during the current favorable tax climate. However, Marc Pfeffer of CLS Investments says, “The expectation right now is that Biden intends to unwind at least some of the corporate tax cuts that were implemented under the Trump administration. That may not bode well for the market because corporations will pay higher taxes.” The bottom line: Biden aims to roll back tax cuts and apply the increased payroll tax to those making over $400,000, while Trump seeks to extend the 2017 tax overhaul for individuals.

Social Security

COVID-19 effortlessly metastasized across the global economy in 2020, effectively causing the loss of millions of jobs in the United States. As a result, payroll tax revenue has taken a substantial hit. This places Social Security’s $3 trillion trust fund on much less stable ground. Expert analysts believe it could run out before the decade’s end. This does not mean Social Security would stop, but it likely means adjustments will be made to benefits and revenue sources that fund Social Security.

Candidate Biden and other Democrats have proposed applying the payroll tax to wages above $400,000 to avoid insolvency. In the past, Republicans have sought to lift the full retirement age and adjust the benefits. Trump has not backed any such proposals at this time. But the data indicate it will not be possible to delay these decisions much longer. The clock is ticking to save the current state of Social Security benefits.

Markets & the Economy 

It will prove challenging to ascribe a legitimate correlation between markets, the economy, and the subsequent effects of a Presidential Administration. Unfortunately, many factors have compounded our problems as a country this year.

We have a global pandemic, which is still very much with us. It remains to be seen how much the half-hearted lockdown, ineptitude for testing, and uncoordinated reopening will affect us. The virus does not care about economics or politics. It only cares that we keep breathing down each other’s necks, and we’ve certainly done enough of that.

Frances Newton Stacy of Optimal Capital commented, “I think the market appreciates a Trump economy more. I think Trump will push the reopening [of economies] much more aggressively, whereas Biden will be more cautious, which affects markets.” Companies could see higher profits as President Trump would continue to roll back stringent regulations. Stock prices would keep climbing.

Conversely, former Barron’s editor Ed Finn acknowledges that equities may decline in the immediacy of a Biden victory, but that stocks may ultimately deliver total annual returns of 15% over the next four years thanks to Biden’s pro-trade and pro-immigration policies. History demonstrates that the first two years of a presidency result in lower market returns than the second two years. But as we all know, past performance is no guarantee of future results.

Politics should never be this interesting. But returning the economy to its feet should be the priority for whoever wins the election. The next time you hear someone say President Trump or Biden would be better for their portfolio or that they’re moving to Canada or Yemen because their candidate lost, they are likely blowing smoke.

If you would like to know the state laws governing early voting, click here and search for your state. Regardless of where you stand, we encourage you to understand better your portfolio, tax situation, income plan, legacy plan, and whether your taxes can be reduced. These affect you and your loved ones the most, and we can certainly help with that.

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