Biden's plan for the economy
RICK NEWMAN: From Yahoo Finance, this is "Electionomics." I'm Rick Newman.
ALEXIS CHRISTOFOROUS: And I'm Alexis Christoforous. This week, we take a look at democratic nominee Joe Biden's economic and tax plans. And Rick, I know that you recently spoke with Biden's economic advisor, Jared Bernstein, about this.
And look, we know he has a lot of plans when it comes to the economy. We know he wants to raise taxes. But what did Jared Bernstein have to say about how Biden is prioritizing all of those plans?
RICK NEWMAN: Yeah, that's an important question. This was an illuminating interview, because Joe Biden has lots of plans on his website. And he talks about one in this speech, and another in another speech, and so forth. And it's a little bit hard to get a real sense of the strategy, unless you have somebody from the campaign explain it to you.
So Jared Bernstein, he was Joe Biden's chief economist when Biden was vice president in the Obama administration. And he's now one of the top economic advisors to the Biden campaign. And here's how he explained it.
First order of business if Joe Biden gets elected in November is not health care or climate change or any of those big plans you hear about. First order of business economically is dealing with the coronavirus. So the Biden campaign, to my mind correctly, identifies the coronavirus as a huge economic issue in the things standing in the way of, you know, developing any other economic program.
So the first thing they want to do is put in place Joe Biden's coronavirus plan. And it's very different from President Trump's. Unlike President Trump, Biden wants to have an aggressive federal response to the coronavirus.
You know, he started talking about this in the spring. And back then you thought, well, this will all be OBE, Overcome By Events, by November or by January of the following year, if Biden were to win. Now, I mean, I don't think it looks that way anymore, right?
The coronavirus is still here. It's still a huge problem. It's still preventing a lot of businesses from reopening. And it's, you know, millions of jobs have now disappeared, and some temporary layoffs are becoming permanent.
So what Joe Biden would do is he would set up something called the Pandemic Testing Board. The job of this testing board would be to make sure-- and the government would pay for this-- make sure there are enough coronavirus tests so that everybody can get tested when they go to work. You can get tested once a week if necessary. Wherever you go-- to work, to school, any place that matters economically-- if you need testing to be able to tell who can safely be there and who needs to go home and quarantine, we're going to have that level of testing.
Obviously, we don't have that level of testing now. There's really no federal effort to develop more aggressive testing. Trump has pushed it all to the state and local level.
And there are other things Biden would do. He wants to hire 100,000 people and put them in an army of contact tracers, going around and figuring out if someone got-- if someone comes down with the virus, who they've been in contact with. That is really not happening very effectively at this point.
So that is the Biden plan. That is the first order of business in terms of his economic plan. I think it sounds good. You know, the plan and how effectively you'd be able to pull it off are two different things. So I don't know how effectively they would be able to do it.
Part of this would-- you know, some of these supplies, for example, are imported. A lot of the protective gear is imported from China. And there's no demand for that stuff worldwide.
So maybe they wouldn't be able to do this as quickly as the campaign says. But it would definitely be a different focus from what President Trump has been doing.
ALEXIS CHRISTOFOROUS: And I know that Biden-- one of the things he has talked about extensively is undoing a lot of what was done by President Trump in the 2017 Tax Cuts and Jobs Act-- which, depending on who you listen to, added anywhere between 1/2% and 1% to GDP.
And there were some critics out there who say Joe Biden's plan to want to tax people-- I think it's above $400,000 a year in income-- would actually do a lot more than just affect those top earners, that it would trickle down to businesses and mean lower wages, and ultimately, lower GDP. Did Jared Bernstein talk at all about that?
RICK NEWMAN: Yeah, we went into detail about Biden's tax plan, for those reasons. Some people think that it would go a lot deeper than Joe Biden says it would. So a couple of points on this, Alexis.
First, I'm not sure there are many good studies showing that the Trump tax cuts actually led to any kind of sustained increase in GDP. I think they helped boost GDP the first year they went into effect in 2018.
But GDP growth in 2019 was only 2.3%. So that's not-- that's not really much different from what it was during Obama's last four years. And that was before the coronavirus pandemic.
But at any rate, you're right. Biden does have plans for tax hikes that would total about $4 trillion in new federal revenue over 10 years. And what Biden says-- so here's one source of the confusion.
So Biden has said, first thing I would do is repeal the Trump tax cuts. And some people listening say, well, I know the Trump tax cuts did favor businesses and the wealthy.
But there were also some middle class tax cuts in there-- and there were. The Trump law did lower-- it lowered every tax bracket, so everybody's tax bill went down by a little.
I just looked these numbers up. For a middle-income taxpayer, the savings from the Trump tax law was about $780 a year. I think that's $65 a month. So there were surveys after the law went into effect, and a lot of people said they didn't notice that they got a tax cut, even though they probably did.
You know, their after-tax income probably went up a few bucks every paycheck, so they did get a tax-- but some people hear Biden say he's going to reverse the Trump tax cuts and they think, oh, well, that must include the middle-income tax cuts, so he's lying when he says it's only going to affect high-income people.
So the facts of the actual Biden plan, separate from what Biden may say in off-the-cuff remarks about it, is the plan is detailed-- I mean, it's actually written so that it does not affect taxes below people who earn $400,000 a year. So you know, that's just the numbers on paper as they would go into effect.
There has been some analysis that showed, even though the Biden tax hikes would not supposedly affect middle-income taxpayers, if you did raise the tax on businesses, which Joe Biden wants to do, then over time that would depress some workers' incomes a very small amount.
And so when you look at the effect it would have on the after-tax earnings of middle-income workers, it shows-- at the Tax Policy Center, for example, it shows that middle-income workers, their after-tax income would go down by about $300 a year.
That's not because the tax rate would change. It's just because there would be this sort of second-order effect that works its way through the system. So this is probably a long-winded explanation of what this all is.
I think an important thing to point out here is when we asked Jared Bernstein, Biden's economic advisor, about the priority scheme, this is down the road. This is not year one of a Biden administration, because the first thing, again, is get the coronavirus under control.
Second thing is not the tax plan. The second thing is try to get whatever additional stimulus might be needed to get the economy out of the ditch. Get that through Congress. And only then would Biden start going for these longer-term things.
And all those tax hikes, they're all attached to, you know, a plan for more affordable housing or the climate plan or something like that. So that might not happen until year two or year three. And who knows what the situation is going to be like at that point.
ALEXIS CHRISTOFOROUS: But if Congress remains split, Rick, did Bernstein all talk about how that might impact Joe Biden's plans for this COVID-19 related economic recovery? I mean, what kind of assistance might he be offering or be able to, frankly, pass in a divided Congress-- which could be a reality, right? If Biden takes the White House, it doesn't necessarily mean we're going to have a Democratic Congress.
RICK NEWMAN: Absolutely right. You know, I would say-- the odds are, let's say, maybe 60% that Joe Biden wins the presidency in November. You know, it's a little bit better than 50% at this point.
But the odds that Joe Biden wins and Democrats also take control of the Senate, which they would need to have total control of Congress, I would say that's maybe a 40% likelihood. So you know, the better Joe Biden does, the greater the Democratic turnout in November-- and of course, all the people who are going to be voting before then by mail-- and the more Independents who decide they want to have a say in the outcome this year, I mean, that all would probably boost Biden's margin and make it more likely we're going to have a Democratic Congress. And they might actually get a chance to do some of these things.
If Republicans can retain control of the Senate, I think most of these things we're talking about become moot. For sure, what Biden would try to do is he would try to drive some traffic through the big hole President Trump has opened through executive actions-- you know, the executive orders and other things like that.
So if you think about it, President Trump recently, through an executive order, he managed to move-- I think the number was $45 billion-- from an emergency fund, which is what Congress appropriated. He was able to move that money over to be used for a bit of additional unemployment aid, an extra $300 a week for however long that money lasts.
So you can do some things through executive action. Not all of them get overturned by the courts. And I'm sure Biden would try to do something similar.
He probably would be able to do some part of the coronavirus response he's talking about. He probably could set up a pandemic testing board. He probably could find resources.
He could use the Defense Protection Act, which we've been hearing a lot about for the last several months. He could invoke that in ways that Trump hasn't to give him some emergency authority to buy more supplies, more protective gear, and stuff like that.
But in terms of the big plans-- health care reform, education reform, housing, climate plan-- all that stuff is, I think, essentially impossible if Republicans control the Senate.
ALEXIS CHRISTOFOROUS: And what about-- I mean, I know you said that it wouldn't be one of his top priorities, that the issue of taxes and raising taxes would come down the pike in a Biden presidency. But where does Trump stand on all that?
We know he's promised tax cuts. But would they be middle-class tax cuts, which we know he's been criticized for, you know, giving breaks to the higher earners. What does his tax plan look like? And what would we see that implemented faster than, say, during a Biden presidency?
RICK NEWMAN: Trump's tax plan, if you ask me, looks like he's standing over a crevasse with one leg over here and one leg over here and a giant hole right down the middle. And the reason for that is the tax cut that he's talking about now-- and that he actually has done this. He has not actually cut the tax. He has delayed the tax. It's the payroll tax.
So Trump signed an executive order in August that gave employers the right to-- let me see if I can get this straight, because it's complicated. And almost nobody is going to do it.
But withholders can stop collecting the employee portion of the payroll tax for four months, September through December. So if the employer agrees to do that, then the employee's paycheck will get a little bit bigger, because a tax that used to get taken out is no longer getting taken out.
The catch with that Trump plan is he does not have the authority to cut taxes on his own. Only Congress can do that. He does have the authority to delay or defer a tax.
So if you're one of the people who said, good, I'll take advantage of that, and you get a little more money because you're not paying your portion of the payroll tax, you owe all those back taxes in January. So that is not appealing to a lot of workers. And it's especially not appealing to employers, who would have to handle the paperwork.
So for the companies that are thinking about doing this, you're basically changing your system, your tax withholding system through whatever your payroll provider is-- or doing it yourself, if you're a very small business-- knowing that you may have to just put it all back to the way it was four months later. And by the way, then your workers are going to have to come up with this after-the-fact, lump-sum tax payment.
Also, that payroll tax funds Social Security. So by telling people they don't have to pay the payroll tax for a while, you are actually cutting into the income stream, the funding stream for Social Security.
And I think when Trump says, I'm going to cut payroll taxes if I get a second term, I think the gamble he's making-- and this is not a smart move by him, in my opinion. He's basically saying, I'm deferring the payroll tax for now. But if I get elected, I'm going to get Congress to kill that tax permanently so you're never going to have to pay it back.
Except it's almost impossible to imagine Congress would kill a tax that funds Social Security. And Biden is starting to run against Trump as the guy who is threatening Social Security.
So I don't know, maybe Trump is onto something here and seniors really don't care as much about Social Security as we ever thought, and they're not going to mind. I have my doubts, Alexis. How about you?
ALEXIS CHRISTOFOROUS: Yeah, I think I have my doubts too. But I mean, you talk to economists who say it's going to be really, really tough for Trump to be able to cut taxes, especially to cut them to the degree that he wants, when we have all this debt.
I mean, look what the Federal Reserve's doing in terms of offering assistance to this country. Look at what the federal government is doing during this pandemic. We're in so much-- the deficit is so big. How do you even begin to think about tax cuts of this magnitude in an environment like that?
RICK NEWMAN: Honestly, you don't. I don't even think-- I think if Republicans control both houses of Congress again magically-- which they're not going to. They will not win control of the House. I don't even think Republicans could pass another tax cut at this point, because I don't think they-- I think--
RICK NEWMAN: --what you just said.
ALEXIS CHRISTOFOROUS: It just doesn't seem fiscally responsible to do something like that, right? Like, you know, How To Handle Your Money 101 is, don't spend more than you have. Well, we have a country--
RICK NEWMAN: [INAUDIBLE]. Not if you're the federal government. If you're the federal government, Money 101 is, only spend about 80% more than you have.
ALEXIS CHRISTOFOROUS: There you go. There you go. Well, look, at this point-- what are we? We're inside of two months of the election. Which voters really matter at this point for each candidate?
RICK NEWMAN: The voters who are trying to decide whether they should even go out and vote. I think that is probably--
ALEXIS CHRISTOFOROUS: You mean because of the virus or because of just the political landscape?
RICK NEWMAN: I don't think it would necessarily be because of the virus, because I think most states-- and you know, you and I have talked about this a lot. It's really the six swing states that really matter here. And once again, those are Florida, North Carolina, Pennsylvania, Michigan, Wisconsin, and Arizona.
If you're a voter in one of those states and you're interested in the election, you ought to know at this point that you should be asking for a mail-in ballot if you're uncomfortable going out to vote on Election Day in November.
This is going to be really a fascinating study of electoral democracy. We know turnout was huge for the midterm elections in 2018. Democrats really did repudiate President Trump in that election. They did turn out in record numbers for a midterm. It was almost presidential level turnout for a midterm election. I mean, unheard of really.
If we didn't have the coronavirus pandemic, that would be working against Trump, for sure, without a doubt. But how are things going to change this time around? You know, one of the things Biden needs to do, he needs to get a lot more Black voters just to turn out and vote.
You know, we had Ted Johnson from the Brennan Center on a couple of months back talking about how important the Black vote is. Will Kamala Harris, the first Black woman to be a vice presidential nominee help with that? Don't know. Don't know.
I mean, Joe Biden has just started to get out of Delaware. He made a trip to Pittsburgh, my hometown. His campaign says he will be going to the swing states a little bit more.
But these are not the raucous rallies of the past. These are, you know, appearances before a very small audience. You hope the local media picks it up. I think many things are going to be different this time around.
I guess I should also add that maybe 5% to 7% of voters still are undetermined. We had the head of the the Marist poll-- remember, he talked about this?
ALEXIS CHRISTOFOROUS: Lee Miringoff, yeah.
RICK NEWMAN: Yeah. Lee described these people as the haters. They hate both candidates.
ALEXIS CHRISTOFOROUS: It's the lesser of two evils for somebody like that, right?
RICK NEWMAN: Yeah. They have to figure out who they hate less, or who they hate least. And if they hate that person a little bit, you know, small enough-- the hate for that person is small enough that they will actually vote for that person.
ALEXIS CHRISTOFOROUS: Well, Trump--
RICK NEWMAN: Those are the people who did not turn out and vote for Hillary Clinton in 2016, and that was decisive. So those people matter.
ALEXIS CHRISTOFOROUS: But isn't the gap closing in those swing states now? And Biden doesn't have the kind of lead he had just a few weeks ago in those all-important swing states.
RICK NEWMAN: Well, people can look up the polls on this. RealClearPolitics.com does a really good job of tracking all the polls in the swing states. And you know, those swing state polls are not as frequent as the national polls. And we know from 2016, they're not as reliable.
So you know, last time I looked, Alexis, they were tightening up a little bit. I mean, Biden has fallen about two points nationally in the Real Clear Politics aggregate of polls. It used to be close to a nine percentage point lead he had over Trump, and now it's about 7%.
That is still a large lead. And 538, another good polling site, they put something out today showing who was leading at the same point in presidential races in 2016, 2012, and so forth. And Biden's lead is one of the largest.
I mean, there were a couple of larger ones, like Bill Clinton's lead in 1996 was more than 20 points over Bob Dole. But I mean, totally different situation. The economy was really picking up steam back then. Bill Clinton had the wind at his back. You know, it's a different situation now.
But I think Biden looks pretty good. Of course, Democrats are terrified that something is going to happen, that he's going to slip in the fall or, you know, make one of these gaffes, and it'll be unrecoverable. I think--
ALEXIS CHRISTOFOROUS: There's a debate coming up. Isn't the first debate September 29, I believe?
RICK NEWMAN: Yeah. I mean, that is going to be huge. I'm not one for overstatement, but I think the three debates, for anybody who hasn't made up their mind yet, those three debates will probably be the deciding factor. That could be the deciding factor even for people who don't watch the debates, because if Trump or Biden-- and Trump could flub too, you know. Let's keep that in mind. He's not the smoothest speaker, and he's looked a little shaky in public himself. If there's some incident that just becomes the biggest takeaway from the debates and, you know, it defines the last few weeks of the campaign, that could be decisive.
I go through my head and I try to think of all the things it could possibly be. And then I tell myself, don't even bother, because this whole thing is so unpredictable. If anything like that happens-- if there's a black swan event-- it's going to be something I didn't even think of.
ALEXIS CHRISTOFOROUS: Yeah. There's going to be drama, for sure. This you know. And you know, it'll probably be some small little gaffe that one of the guys makes, and the papers and the media just runs with it.
But just getting back to the economic plan for a moment. Corporate taxes-- we know that Trump has been a big proponent, and did actually go ahead and cut corporate tax. What's Joe Biden's plan there?
RICK NEWMAN: Yeah, this is important. So Trump did cut the corporate tax from 35%, which just about everybody thought was too high, all the way down to 21%. So Joe Biden says he would raise it back to 28%.
And again, I should point out that Joe Biden doesn't want to raise taxes just to raise taxes. Every tax hike he has is linked with some program. So I think raising the corporate tax, I think that's one of the funding sources for more affordable housing. And it might also be for his plan to transform to a greener energy sector.
You know, from one perspective-- so you know, if you do raise the business tax, that's less money in the hands of big companies. That probably means fewer stock buybacks and things like that. Depending on how it would be administered or who exactly it would affect, it could also be a higher tax rate on some smaller businesses.
So I think it's important what the threshold is for that, because you probably want to keep the tax rate lower for smaller businesses and some family businesses and wouldn't worry so much about the big corporate sector, the S&P 500 companies. So the threshold at which that would apply, that's important.
But you know, I mean, you can also say, well, corporate America did just fine. And the stock market went up when the tax rate was 35%, right?
You know, we had a stock market boom from March of 2009 all the way until February of 2020. That was an 11-year stock market bull market. And for most of that time, the corporate rate was 35%.
So stocks can go up with a higher tax rate. There have been a lot of charts circulating-- you've probably been talking about them on air, Alexis-- that if a challenger beats an incumbent, you sometimes do see a wobble in the stock market, and the stock market goes down before it recovers. And then the stock market tends to recover. And generally, you know, stock market usually goes up more than it goes down, obviously.
So maybe that's something for investors to think about. If it really looks like Biden is going to win leading up to November 3 and then he does, we could see stocks go down, I don't know, 5%, 10%. And maybe that will be the dip that a lot of people are hoping to buy right now.
ALEXIS CHRISTOFOROUS: Yeah, it could be the correction that a lot of the specialists that we talked to on air believe is going to happen sooner rather than later. They don't know what the event might be. It could indeed be a Biden presidency.
RICK NEWMAN: Let me ask you about this, though. I mean, you interview so many of these people on your program. Do you think the Federal Reserve would let a stock market correction happen right now?
ALEXIS CHRISTOFOROUS: I think that it shouldn't be their priority to talk about, you know, the behavior of the stock market. But certainly, what they do does affect our decisions.
I think this environment of low interest rates is just going to continue to have people move into the equity markets, because where else are you going to get real sizable returns? You can't get it in the Treasury market.
We're going to leave it there, Rick. All right, be sure to rate your review what you just heard and saw. And you can follow me, as always, @AlexisTVNews.
RICK NEWMAN: And me, @RickJNewman.
ALEXIS CHRISTOFOROUS: All right, everybody. We'll see you next time. Thanks.
RICK NEWMAN: Bye.