Generous Bidenomics... Corporate Burden Grows Larger

Prospects for Biden's Economic Policy

[Asia Economy Reporter Seulgina Jo] 'Build Back Better.'

The economic policy of Democratic candidate Joe Biden, who is rapidly approaching the U.S. presidential election victory, presents a distinctly different path from the 'Trumponomics' of the past four years, which focused on growth through tax cuts and deregulation. The core of 'Bidenomics' is to secure funds through increased corporate and personal income taxes and invest them in building eco-friendly infrastructure to create jobs, while doubling the minimum wage to restore the middle class. In short, it is about generously providing financial support.

However, if Biden's tax hikes become a reality, analyses suggest that additional tax revenues could reach up to $4 trillion over ten years, inevitably increasing the burden on companies. IT giants and financial regulations are also expected to be tightened.

Examining Bidenomics... Expanding fiscal spending by securing tax revenues through tax hikes

Biden's economic policy, Bidenomics, is centered on tax increases, investment in eco-friendly infrastructure, and raising the minimum wage under the catchphrase of building back better. It emphasizes stable growth based on reducing inequality through growth and redistribution and restoring the middle class.

The biggest difference from Trumponomics is seen in tax policy. First, the corporate tax rate will be raised from 21.0% to 28.0%, and the top personal income tax rate will be increased to 39.6%. This means restoring the top income tax rate, which had been lowered to 37% during President Trump's term, back to its previous level. The strategy is to expand fiscal spending capacity based on so-called tax hikes on the wealthy and corporations and pour these funds into eco-friendly infrastructure investment.

Currently, the U.S. corporate tax rate ranks 16th lowest among the 34 OECD member countries. However, if raised, it will exceed South Korea's rate of 25.0%. The tax rate on income from U.S. companies' overseas subsidiaries (GILTI) will also increase. This inevitably increases the burden on companies. However, with the Republican Party holding the Senate majority after the November 3 election, many voices say it will be difficult for Biden's tax hikes to be realized.

Biden plans to expand fiscal spending simultaneously with tax increases, aiming to increase it by $6 trillion by 2030. The top priority pledge is large-scale infrastructure investment to respond to the novel coronavirus disease (COVID-19). HSBC forecasted that "Biden's tax hike policy may negatively affect economic recovery," but also noted that "the negative impact (from tax hikes) could be limited due to COVID-19 response and large-scale fiscal spending."

Especially, Biden faces the difficult task of maintaining fiscal soundness amid a fiscal deficit amounting to 100% of GDP. In monetary policy, low interest rates are expected to continue to support the continuity of fiscal expansion policies.

Tighter regulations... Minimum wage doubled

Regulations are expected to become stricter in the Biden era. The industry most alert to this is IT giants such as Google, Amazon, Apple, and Facebook. Currently, the Democratic Party is closely watching antitrust issues involving major IT companies. Considering past precedents of government-led corporate breakups like AT&T, there is a high possibility of extensive regulations for forced breakups. In the financial market, Biden is also considering imposing a financial transaction tax and reintroducing the Glass-Steagall Act. The corporate tax rate for banks will also increase from 21% to 28%.

On the other hand, the clear beneficiary industry of Bidenomics is clean energy. Biden, who has declared a goal of 100% clean energy with carbon neutrality, has put electric vehicles, infrastructure, and renewable energy industries at the forefront. He also expects to create 5 million new jobs through 'Buy American,' which prioritizes purchasing American-made products, and expanding supply chains. Biden's 'Buy American' policy is also seen as similar to President Trump's America First policy. However, since Biden places emphasis on eco-friendly industries, traditional fossil fuel businesses such as oil and gas are inevitably expected to be hit.

The differentiation between Bidenomics and Trumponomics is also evident in labor policy. Biden pledged to raise the federal minimum wage from $7.5 to $15 per hour. This is driven by a sense of crisis over the worsening income inequality in the U.S., where the top 10% earn nearly half of all income after the Trump era. By raising taxes on high-income earners and simultaneously increasing the minimum wage, Biden aims to narrow the income inequality gap. However, this is also expected to be a burden for companies already shadowed by COVID-19 uncertainties.

Externally, the tariff bombs triggered by Trump that shook the global economy are expected to ease. However, considering that Biden has also mentioned the need to correct China's unfair trade practices, the U.S.-China trade war is not expected to end. As a multilateralist, he is likely to choose to check China by strengthening alliances with allied countries.

This content was produced with the assistance of AI translation services.