FINANCE TODAY | ISSUE NO.14
HISTORICAL IMPACT
The two major parties in the U.S are on opposing sides of the spectrum and have notably different approaches for managing the economy. In terms of financial markets, equity markets usually gain value shortly following a Republican candidate win and lose value after a Democratic win. Still, risk assets tend to do better in the year following an election relative to non-election years. Moreover, equities have tended to outperform in years following a split Congress and underperform when parties sweep the White House and Congress (Preston,2020). Of course, financial markets in 2021 will have the additional influence of whether successful COVID-19 vaccines have been identified and widely distributed.
Another factor that contributes to why markets and the economy react so quickly following an election is that many presidents pass major domestic policy initiatives within their first term. This was the case under the Obama administration which passed the Affordable Care Act, and under the Trump administration which implemented significant personal and corporate tax cuts, typical for their respective parties.
CANDIDATE OVERVIEW
The graph above shows that Biden’s tax increases will have a larger impact on wealthier Americans, andhighlights the percent change in after-tax income based on his proposed tax plans.
Two of Trump’s main priorities are extending tax cuts and increasing deregulation of the markets. Cuts made to federal spending would create savings to be spent on lowering taxes. While Trump’s approach to taking on the economy is not outlined in as much detail, Trump’s plans would save mid-to-high earning Americans thousands in taxes each year. Thisapproach will save businesses and Americans money in taxes for the current period, but long-term performance and economic impact will likely not be as positive (Preston, 2020).
The graph above shows that Biden’s tax increases will have a larger impact on wealthier Americans, andhighlights the percent change in after-tax income based on his proposed tax plans.
Two of Trump’s main priorities are extending tax cuts and increasing deregulation of the markets. Cuts made to federal spending would create savings to be spent on lowering taxes. While Trump’s approach to taking on the economy is not outlined in as much detail, Trump’s plans would save mid-to-high earning Americans thousands in taxes each year. Thisapproach will save businesses and Americans money in taxes for the current period, but long-term performance and economic impact will likely not be as positive (Preston, 2020).
WHY SHOULD CANADIANS CARE?
The U.S election has the potential to have a bigger impact on Canada than a Canadian election. If Trump wins the election, the Canadian economy will likely not experience too much of a shift, but is it still important to consider the impact of American markets’ influence on the TSX. The Trump administration is very quick to apply tariffs to Canadian products in the past as an example, and this pattern is bound to continue. A Biden win should improve Canada’s relative tax competitiveness compared to increased personal and corporate tax rates in the U.S. Biden’s platform also focuses on environmental sustainability, which could be harmful for trade with Canadian oil sands. Regardless of the outcome of the election, Canada’s smaller and more trade reliant economy will be impacted by the results. The combination of a presidential election in one of Canada’s largest trading partners, coinciding with the COVID-19 pandemic will result in volatile, albeit interesting, economic and financial market trends.
*The article above is based on information published by TD Economics. The political commentary in the article is not reflective of the views of the author or RUFS. All content provided is not meant to malign any person or party. No political views are reflected in this summary by the author and RUFS.*
References
Preston, L. (2020, September 16). U.S. Election 2020: Economic and Financial Implications. Retrieved September 29, 2020, from https://economics.td.com/can-us-election-2020