[Biden Victory] Examining Economic Pledges... Tax Burden and Minimum Wage Both Increase

[Image source=AP Yonhap News]

[Asia Economy Reporter Seulgina Jo] The economic policy of Democratic candidate Joe Biden, who won the U.S. presidential election, centers on tax increases, investment in eco-friendly infrastructure, and raising the minimum wage. Under the catchphrase "Build Back Better," the focus is on stable growth based on reducing inequality through growth and redistribution, and restoring the middle class.

This is distinctly different from the "Trumponomics" of the past four years, which prioritized growth through tax cuts and deregulation. The core of "Bidenomics" is to use the funds secured through increased corporate and personal income taxes to invest in eco-friendly infrastructure to create jobs, while doubling the minimum wage to restore the middle class. Regulations on IT giants and finance are also expected to be strengthened.

As Biden effectively secured victory in the presidential election on the 7th (local time), some changes in major U.S. policies including economic and financial sectors are inevitable.

The biggest difference from Trumponomics is evident in tax policy. First, the top 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 increases on the wealthy and corporations, and to pour these funds into eco-friendly infrastructure investment.

Currently, the U.S. corporate tax rate ranks 16th lowest among the 34 member countries of the Organisation for Economic Co-operation and Development (OECD). However, after the increase, it will be higher than South Korea's (25.0%). The tax rate on income from overseas subsidiaries of U.S. companies (GILTI) will also be raised. Although the Republican Party's control of the Senate following the November 3 election has led to predictions that "Biden's tax increases" may be difficult to realize, the burden on companies is inevitably expected to increase.

Regulations are also expected to become stricter. The industry most alert to this is the 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 such as AT&T, there is a high possibility that regulations for forced breakups will be implemented extensively.

In the financial market, Biden is considering imposing a financial transaction tax and introducing the Glass-Steagall Act. He has also pledged to strengthen the Volcker Rule, which restricts risky investments by U.S. financial institutions, and to reactivate the Consumer Financial Protection Bureau. There are concerns that the financial market will contract significantly as regulations, which were relaxed during President Trump's term, are tightened.

In particular, the introduction of a financial transaction tax is expected to directly impact bank profits. This will inevitably have repercussions for Korean financial companies operating in the U.S. The Bank of Korea analyzed in a separate report that "the Trump administration's regulations allowing financial advisors to prioritize their own interests over clients' interests will be revised," and "the burden on financial companies will increase."

On the other hand, the beneficiary industry of Bidenomics is undoubtedly clean energy. Biden, who has declared a goal of 100% clean energy accompanied by carbon neutrality, has put electric vehicles, infrastructure, and renewable energy industries at the forefront. He also pledged to promote research and development (R&D) worth $300 billion in artificial intelligence (AI), quantum and high-performance computing, 5G and 6G, new materials, clean energy, semiconductors, and biotechnology. Related industries are expected to benefit.

Biden expects to create 5 million new jobs through "Buy American," which prioritizes purchasing American-made products, and supply chain expansion. "Buy American" is also evaluated as similar to President Trump's America First policy. However, Biden places emphasis on eco-friendly industries, so 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 based on a sense of crisis that income inequality in the U.S. has deepened to the point where the top 10% of earners account for nearly half of total income during the Trump era. The plan is to narrow income inequality by raising taxes on high-income earners while increasing the minimum wage. However, this is also expected to be a burden on companies already overshadowed by uncertainties related to COVID-19, along with tax increases and regulations.

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, Biden is likely to choose to check China by strengthening alliances with allied countries. The Korea Institute for International Economic Policy (KIEP) analyzed that "the U.S. will use regional multilateral trade agreements to check China," and that it may request South Korea to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This is explained as a revival of a U.S.-centered multilateral trade system to counter the China-led Regional Comprehensive Economic Partnership (RCEP).

However, the top priority pledge to be pursued is undoubtedly large-scale infrastructure investment to respond to COVID-19. Biden plans to significantly expand fiscal spending along with tax increases. HSBC forecasted that "Biden's tax increase policy is negative for economic recovery," but also noted that "the negative impact (from tax increases) may be limited as COVID-19 response and large-scale fiscal spending are implemented." In monetary policy, low interest rates supporting the continuity of fiscal expansion policies are expected to continue.

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