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Everything a Biden-Harris Presidency Means for Your Personal Finances

Personal Finance

On Saturday, November 7, 2020, Joe Biden was named President-Elect of The United States. Kamala Harris made history by becoming the first female Vice President in US history.

This election was historic in many ways.

First, it drew a record number of voters from both sides despite our nation fighting through the horrors of the pandemic.  Both Joe Biden and Donald Trump received more popular votes than any other candidate ever – over 75 million and 71 million votes respectively.

Second, Joe Biden is the first candidate since 1992 to beat an incumbent president.

Third, and most important in my opinion, Vice President-elect Kamala Harris is the first woman EVER to hold the VP title.  She’s the daughter of immigrants.  She is a Black and South Asian American woman.  And it all happened in 2020 – 100 years after women were given the right to vote and 200 years after the first US presidential election.  Let that sink in for a minute.

Congratulations, Madam Vice President!

So, what does Biden-Harris Presidency might mean for your money?  Here is Femme Money’s look at how your personal finances may be impacted over the next couple of years.

What happens in Congress is key

Divided government has historically been good for markets, with the S&P 500 rising 60% on average during periods when neither party had full control.

Right now, the Democrats are expected to keep control of the House, but Senate still hasn’t been called.  If Republicans keep control of it (which is what the markets are pricing in), Biden might have a harder time checking things off his to-do list.

COVID-19

What happens to your wealth and health in the near term is riding on the creation of a safe and effective COVID-19 vaccine.

The news on this front has been positive.  Drugmaker Pfizer said Monday, November 9th, an early look at data from its coronavirus vaccine shows it is more than 90% effective.  In a news release, the pharmaceutical giant said it plans to seek emergency use authorization from the FDA soon after volunteers have been monitored for two months after getting their second dose of vaccine.  Pfizer said it anticipated reaching that marker by the third week of November.

Personal Income tax

Biden plans to raise the top marginal individual income-tax rate from the current 37% back to 39.6%. This hike will apply to the taxable income of more than $518,400 for individuals and $622,050 for married couples.

All other brackets would remain at current levels: 35%, 32%, 24% 22%, 12%, and 10%.

Capital gains tax

Investment profits that exceed $1 million would be taxed at regular income-tax rates of up to 39.6%, rather than the current highest capital-gains tax rate of 20%. For gains below $1 million, the current long-term rate would still apply.

Biden’s tax plan keeps the capital-gains tax rate the same for the bottom 99% of earners. Married couples who have taxable income of less than $80,000 won’t owe any capital gains tax.

When taxable income is more than $80,000 but less than $496,600, a 15% tax applies to gains. Couples with income between $496,600 and $1 million would pay a 20% tax.

Estate Planning

The biggest changes might come for estate planning. The Trump administration doubled the $5.49 million per person estate-tax exemption.  As of now, any individual can leave an estate up to $11.58 million without incurring the estate tax. The figure is $23.16 million per couple.

Biden plans to return the exemption to $3.5 million per person and raise the estate tax rate to 45% from 40%.  Ouch.

The estate tax is paid by the estate itself before the assets are given to the heirs. Therefore, heirs don’t owe any tax on property they inherit, even if they sell it right away.  This process might change under the Biden administration.

Under current law, the cost basis (or purchase price) of assets is reset to the current market value at the owner’s death. Heirs may inherit an asset with massive embedded capital gains, but that capital-gains clock is reset to zero on the date of death, and tax is owed only on appreciation after that.

For example, if you inherit the home your parents bought for $50,000 and, at their death, was worth $1,000,000, your cost basis would be reset to $1,000,000. If you sold it right away, you would not owe any tax.

Biden’s plan changes that.  Some financial industry experts call it “a double tax” because the levy is assessed based on the estate’s fair market value.

For example, an estate of $7 million would owe estate tax on about $1,500,000 ($7 million minus the proposed $5.49 million exemption) before it is distributed to the heirs. They would inherit the property with the original cost basis, so, whenever they sold, they’d owe capital gains tax on the profit off the original purchase price. In other words, the same assets would be taxed twice.

This is a very significant change and if implemented, it will affect how people manage their portfolios.

Minimum wage

Joe Biden has proposed raising the federal minimum wage to $15 from the current $7.25 per hour.  This would be an amazing change for millions of Americans because the wage hasn’t been increased since 2009.

Student debt

Biden plans to implement a lot of changes for student loan borrowers and for future students.  Right about time!

First, Joe Biden had proposed canceling at least $10,000 in student debt per borrower and forgiving all college debt for low- and middle-income graduates of select schools.

Second, Biden plans to make public universities tuition-free if your family earns less than $125,000 a year and double the amount of need-based grants available to students through the Pell Grant program.

And finally, Biden hopes to see private student loans eliminated through bankruptcy.

The Bigger Picture

We still have a long way to go.

The election story isn’t completely over yet because it’s unclear how various court challenges by the Trump campaign will play out.

Rising COVID-19 cases cast a dark shadow of uncertainty on the economy as we’re headed into winter.

The control of the Senate is still up in the air possibly until January.  It may delay the approval of a much-needed substantial stimulus package.

But we know one thing for sure.  When women are present in places “where decisions are made”, good things happen for everyone.  Whether you voted for Biden or Trump, let’s unite in celebrating this big victory for all the women in our country.  Congratulations, again, Madam Vice President!


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