The semiannual Big Money Poll from Barron's magazine came out a couple weekends ago. Of the 137 professional money managers from around the country who responded, 75% thought the re-election of President Donald Trump would be better for the stock market, and 60% thought Trump would be better for the economy. Just another reminder that the stock market is not the economy. Not quite.
But in the "can't always get what you want" category, 54% of those investment experts thought Democratic presidential challenger Joe Biden would nonetheless win. Note, however, that four years ago 60% of them thought Hillary Clinton would win, so it seems you can't always get what you need, either.
Still, if Biden pulls through, voters can expect a much more discriminating debate about the economic impact of his policies than there has been these last four years about Trump's. And fair enough. Biden's plans involve a great deal of public investment, which he says will lead to more jobs and a robust economy. Addition by addition. It's a more specific way of saying, as Trump once did, that Americans will win so much they'll get tired of winning. "Build Back Better," Biden calls it, in an effective if more prosaic phrasing.
Americans are often reminded, though, that presidents have less control over the economy than voters think they do. So what might the economic impact of this year's decision really be? Several of the country's organizational thinkers-about-such-things, among them Moody's Analytics and the Hoover Institution, are on the case. Naturally, there are dueling conclusions.
Before I proceed, I should note that Moody's, as a risk-management firm that helps clients respond to the twists and turns of the marketplace, could be seen as politically indifferent. Trust in that is not universal, of course. The editorial board of the Wall Street Journal puts it this way: "[E]veryone knows most economists at today's big financial institutions have a Keynesian bias that posits consumer demand and government spending as the main drivers of growth."
Meanwhile, the public-policy think tank Hoover, writes one of its associates, "is a conservative atoll in a sea of progressive big money and left-leaning thought." The organization itself writes that it promotes "the principles of individual, economic, and political freedom." Which includes room for two economic advisers formerly of the Trump administration to be among the authors of a report judging the plans of Trump's opponent. I'm not saying it's wrong for them to do so, but note the source.
Hoover thinks that 4.9 million jobs, $2.6 trillion in GDP and $6,500 in median household income would be lost by 2030 as a result of a Biden presidency. Moody's, meanwhile, thinks Biden's governance would add 7.4 million more jobs to the economy than Trump's would, and that full employment would be restored "in the second half of 2022 under Biden, compared with the first half of 2024 under Trump." It thinks GDP would grow by 2.9% annually and disposable income by 0.9% annually by 2030 if Democrats win the presidency and both houses of Congress, compared with 2.4% and 0.7% under the opposite scenario. (There are many more details in each analysis, and you can read them at tinyurl.com/jb-hoover and tinyurl.com/jb-moody.)
Which is correct? It depends in part on how much weight you give to the dampening effects of taxes and regulations (in particular, those related to climate policy) on the economy. The Hoover report considers those effects heavy indeed.
Other analyses, like those from Goldman Sachs and the Wharton School of the University of Pennsylvania, are more in sync with the Moody's interpretation. Wharton — coincidentally Trump's business education alma mater — thinks that "by 2050 the Biden platform would decrease the federal debt by 6.1 percent and increase GDP by 0.8 percent relative to current law."
Biden has repeatedly emphasized that his proposals for higher taxes won't touch anyone making less than $400,000 a year. But for my money (much more figuratively than literally), there are two elements of his platform that could reach down and at least poke at that cohort: lowering the exemption on the estate tax and eliminating the step-up feature of the capital gains tax.
The estate tax applies to property — cash, real estate, stock or other assets — being transferred from the deceased to their heirs. The taxing takes place before the transfer. It currently does not trigger until the value is above $11.58 million for an individual or $23.16 million for a couple. Biden would lower that to $3.5 million per person, where it was in 2009. That's still a generous exemption, but there'd be less to work with after a tax rate of up to 40% (45% under Biden's plans) was applied and the remainder perhaps divided among multiple beneficiaries.
The change to the capital gains step-up has an even broader potential impact. This is the rule that says if you inherit an asset upon someone else's death — perhaps it's your parents' oil stocks, or their home — you get a new cost basis. If you sell it immediately, you probably won't have a taxable gain. But Biden would tax you based on the original cost basis (good luck finding it!) at a rate of 15% for most people and as much as 39.6% for those who made more than a million. Theoretically such a plan could offer exclusions to protect average Jills and Joes, but the Biden campaign hasn't specified.
Beyond the individual impacts, such a policy could make it harder to pass farms or small businesses to a new generation.
All this may seem moot in an election season in which, as of Wednesday, more than half of likely voters (based on the total number of votes in 2016) had already cast ballots. There may not be many people waiting to decide their vote based on tax policy. But they'll pay it more attention if Biden wins. Never underestimate the energy of self-interest.
Getting back to those money managers from the start of this article, 42% said they believed getting COVID-19 under control should be the top priority of the next administration. The next priorities, in order: reducing unemployment (24%), passing an infrastructure bill (10%) and cutting back on regulation (8%).
In other words, in order to worry about economic impacts, you've got to have a functioning economy. Recall how self-interest sometimes leads to common purpose.
David Banks is at David.Banks@startribune.com.