Pairing President Joe Biden with a Democratic Congress surely means taxes will rise, regulatory oversight will increase and the government’s role in health insurance will be expanded.
All those things became possible on Jan. 5, when Democrats swept a pair of Georgia Senate races. Sens. Rafael Warnock and Jon Ossoff defeated Republican incumbents Kelly Loeffler and David Perdue, respectively.
The special election victories give Democrats slim control over both chambers of Congress. Analysts speculate that centrist senators such as Sen. Joe Manchin, D-W.V., and Sen. Lisa Murkowski, R-Alaska, will wield significant power in crafting deals.
Nevertheless, it opens the door for the Biden administration to move on these three issues:
» Taxes. Biden’s plan would raise corporate and individual taxes, although not for anyone making less than $400,000, and would end preferential treatment of capital gains.
» Regulatory oversight. A new and tougher investment advice rule is likely from the Department of Labor, and the Securities and Exchange Commission.
» Health coverage. Biden could pursue a public option to compete with private health insurance. Another option would be lowering the Medicare age to 60, which the president also endorsed during his campaign.
There are many other economic issues the Biden administration is expected to pursue. The president’s DOL is likely to take a strong pro-worker stance, which could have far-reaching implications for the economy.
Whatever proposals the Biden team produces, the chances of success improved on Jan. 5, said Steve Wamhoff, of the progressive Institute on Taxation and Economic policy, to The Wall Street Journal.
“The issue was always, could Democrats get something on the floor? And the answer to that is now clearly yes,” Wamhoff said.
Having such a slim advantage in the Senate might not change the legislative agenda significantly, said Diane R. Boyle, senior vice president of government relations for the National Association of Insurance and Financial Advisors. She noted the narrow margins and close proximity to the 2022 elections.
But tax rates could certainly change, she added.
“I think we’re more likely to see wealth tax and financial transaction tax proposals as well as activity to increase the corporate tax rate,” Boyle said.
Biden’s plan would raise the corporate tax rate to 28% from 21%, restore the top individual tax rate to 39.6% from 37%, tax capital gains as ordinary income and at death for very high earners, limit deductions for high earners, and subject wages above $400,000 to the Social Security payroll tax, according to the Committee for a Responsible Federal Budget.
Biden would scrap preferential treatment of capital gains and dividends for higher earners, and raise taxes on inheritance. Capital gains and dividends would be taxed as ordinary income, at a rate of 39.6% for individuals and couples earning more than $1 million.
Long-term capital gains are taxed currently at a top rate of 20%, and earned income is taxed at a top rate of 37%.
Also, when one generation inherits from another, the cost basis of that asset steps up from the cost at the time of purchase to the cost at the time of transfer. That means heirs escape taxation on the gain. Biden would restore some taxes on inherited assets — although the campaign has said the plan would not apply for Americans earning less than $400,000.
Biden’s DOL leadership will play a key role in what happens with the investment advice rule the Trump administration published Dec. 15. That rule is expected to be withdrawn by the Biden administration upon taking office.
The investment advice rule is a replacement for the fiduciary rule put forth by the Obama administration. In 2018, the Fifth Circuit Court of Appeals in New Orleans tossed out the fiduciary rule, handing a major win to industry opponents.
The court ruled that the DOL rule “fails the reasonableness test” of the Administrative Procedures Act by extending the department’s ERISA authority to one-time IRA rollovers and similar transactions.
A Democratic-led Senate gives the Biden team an opening to address the court’s concerns legislatively, said Barbara Roper, director of investor protection for the Consumer Federation of America.
Expanding the DOL’s oversight role on rollovers would open the door for tougher rules for recommendations and sales of insurance products.
Otherwise, Biden campaigned on a vow to promote union issues and to make it easier for employees to join unions and collectively bargaining. Here are some worker issues a left-leaning DOL could tackle over the next four years:
Minimum Wage. Biden supports a $15 federal minimum wage. His official website called “wage theft” a serious issue he intends to address. He noted that “employers steal about $15 billion a year from working people just by paying workers less than the minimum wage.”
Overtime. The DOL could revive an Obama-era overtime rule that had raised the minimum salary for exempt status to $913 per week ($47,476 per year), which was invalidated by a federal court. The Trump DOL overtime rule took effect Jan. 1, 2020, and the minimum salary for exempt status increased to $684 per week ($35,568 annually), up from $455 per week ($23,660 annually).
Worker Classification. Biden also supports aggressive prosecution of employers who violate labor laws, including those who intentionally misclassify employees as independent contractors. Biden has said that he will support legislation that makes worker misclassification a substantive violation of law under all federal labor, employment and tax laws.
Gig Workers. Employer misclassification of “gig economy” workers as independent contractors also has Biden’s attention. Doing so prevents them from receiving their legal benefits and protections. Biden supports using a strong three-prong “ABC test” to distinguish employees from independent contractors.
Biden was a key player in President Barack Obama’s crafting of the Affordable Care Act, and he has a stated interest in preserving it. But a Democratic Congress could help Biden expand on government health care initiatives.
Here are five ways a Democratic trifecta could affect health care, according to a recent Manatt Health webinar on the impact of the election:
Public Option. Congress could implement a public option to compete with private health insurance. Congress also could use the public option as a chassis for expanding Medicaid in states that chose not to expand it after the Affordable Care Act took effect.
Affordable Care Act. Congress and the new president could build on the ACA, expanding subsidy eligibility and value.
Medicare At 60. President-elect Joe Biden has stated his support for lowering the Medicare eligibility age to 60. Look for a Democratic-controlled Congress to go along with it, while addressing Medicare insolvency issues.
Drug Pricing. A Democratic-controlled Congress is likely to allow Medicare to negotiate prices with drug manufacturers. Congress also would place caps on drug price increases.
Surprise Billing. This is one issue both Democrats and Republicans can agree on. Surprise billing legislation is likely no matter which party is in charge. The key issue is reaching agreement on the approach to provider payments in out-of-network settings.
In addition, if the U.S. Supreme Court strikes down the ACA in a ruling expected to come down in June, Congress could act to codify some ACA provisions, such as protection for those with preexisting conditions. Congress also could pass legislation before the court reaches a decision, making the court case moot. These legislative options include:
» Change the individual mandate penalty from $0 to an amount that would generate revenue for the government.
» Repeal Section 5000A of the Affordable Care Act, the individual mandate.
» Pass legislation severing the individual mandate from the rest of the ACA.
» Pass health reform legislation that replaces the ACA.