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Jan 19, 2021

Biden Administration Could Mean Whole New World for Federal Taxation

The transition from Donald Trump’s presidential administration to that of Joe Biden’s has been, to put it lightly, rocky. With a new era in presidential leadership set to be ushered in, does this mean a whole new era in federal taxation will come with it? To answer this question, we met with Bruce A. Hyde, CPA, partner and wealth adviser for Round Table Wealth Management in New York City.

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By: Bill Hayes, Pennsylvania CPA Journal Managing Editor

Podcast Transcript

The tenure of Donald Trump as President of the United States was a significant one in many ways, one of which was his reshaping of the federal tax landscape, via the Tax Cuts and Jobs Act of 2017. However, a new President is set take office in Joe Biden, and it could once again mean major changes in taxation.
To talk about what we can expect from the Biden administration when it comes to economic stimulus, the job market, and yes, federal taxation, today we are joined by Bruce A. Hyde, CPA, partner and wealth advisor for Round Table Wealth Management in New York City.

What do you think President Joe Biden's win, along with the sweeping of the U.S. senatorial seats in Georgia by the Democrats, will mean in regard to economic stimulus packages going forward?

[Hyde] I think that one's pretty clear, and I think it's likely to be one of the first things that they work on when the administration begins in just a short period.

I think they really want to get cash out into people's hands. They keep talking about a $2,000 number. I think that's going to be job number one. It could be day number one for him. Very important to do that, to really try to help continue to jump-start this economy that's been tied up with a COVID-19 lockdown.

So it's going to be first order of business, in my opinion.

What do you think the effect will be on the overall tax landscape? Would you say the Tax Cuts and Jobs Act of 2017 is going to be in peril?

[Hyde] Well, if you listen to everything that the Biden group said during the presidential election cycle, it's pretty clear that just about everything in the Jobs Act is likely to get reversed.

They clearly want to raise a lot of revenue to do a lot of things. Obviously, one is COVID relief, two is a major infrastructure bill, and then couple all that with some Green New Deal type initiatives, which is going to take a lot of money.

And we've built up a lot of debt since COVID and, unfortunately, it needs to get paid for somehow. So, I think if you look at, and there's a whole host of things in his plan that are designed to raise revenue, which as I said, I think just almost each and every point where there were reductions in the 2017 bill are likely to be reversed, and then some.

With a Democratic majority in the house and a 50/50 split in the Senate that gets decided by Vice President Kamala Harris, President Biden seems to be in a strong position to advance this tax plan. But there are some moderate Democrats in the mix who could possibly stand in the way. We know, for instance, Sen. Joe Manchin already came out against a possible new stimulus. How much of an obstacle do you think that will be for the plan going forward?

[Hyde] To me, and to others in the industry, I think that's the biggest question mark. If, again, you look back at, there's a-dozen-or-two revenue-raising issues, targeted mainly at the 1%, the question will be how much power will those moderates yield? And will that be enough to change, maybe not the trajectory, but the course of some of these initiatives? I think it's likely that they'll be attenuated a little bit, because if, again, you step through one-by-one these tax increases, they're pretty significant, and I'm not sure whether people have focused on just how big they are. I suspect, along with some moderate Republicans, we might find a middle ground, where they're not going to be quite as onerous.

But politics is a strange place and we'll know when we know, when it's all done.

What sort of effect do you think the Biden victory will have on the job market? What factors could possibly lead to a rise or a dip?

[Hyde] I think there's a lot of competing factors. Number one, getting stimulus money into people's hands and into businesses’ hands should help bring some of the folks that had been laid off in the last year back to work. So, really important. That's obviously the focus of the stimulus is to get people working again and earning. Then, you look more broadly at some of these, as I said, infrastructure and Green New Deal plans. You're talking about a lot of jobs that could be created there, not only from an infrastructure side, but new industries in renewable energy, that will be somewhat offset by many jobs in the traditional carbon-based oil and gas industry. But I think, on the whole, it's likely that by the time we're said and done, there should be a pretty pronounced increase in jobs and, therefore, decrease in the unemployment rate.

Since Joe Biden won the election, what sort of response have we seen from the economy in general, and, I guess, the stock market in particular? What's the forecast for those areas going forward?

[Hyde] So, two things happened. We got through the election, which was a big question mark for the market. Concurrently, we've gotten a number of vaccines in the marketplace, which I think, again, attenuated a lot of the risks in the market. What you've seen is a pretty significant rise in the fourth quarter, and coming out of the gate so far into 2021, the market's up pretty significantly. I think the market's also looking forward to a post-stay-in-place economy, people getting back to work, enormous amount of pent-up demand from people sitting at home, like you and I are today, to get back out and spend some of that stimulus money. Again, all of that cash that's going to be coming into these infrastructure and Green New Deal jobs should really help propel the market. I think that's why you've seen the market move up so much. The market's always looking forward in discounting the future, and I think that's pretty optimistic and has supported a nice tailwind for the market.

So, you're not only a CPA, but a wealth manager by trade. In a time like this of – to put it somewhat mildly – a somewhat rocky transition, what sort of advice do you give your clients to manage their funds and their investments, and hopefully come out looking better on the other side? How can they do that?

[Hyde] So first of all, I am a CPA. I don't practice anymore. Myself and my partner, who's got a similar background, we refer to ourselves as recovering CPAs, so we're not doing tax returns anymore; it's more on the advice side. But I think the same tenets that we always hold dear in investing remain, which is don't put all your eggs in one basket, never take full-out risk, but look forward and say, "By having a diversified portfolio, how can I manage to make more money on a risk-adjusted basis?"

From that perspective, I think, as I said, risks have attenuated quite a bit and, therefore, we're being a little bit more aggressive in terms of how we're investing. Not that we would ever be 100% equity, but we always want to have some fixed income and things like that that can help offset any volatility that might happen in the market. As we've seen many times over, things can look rosy until they don't and having a diversified portfolio really helps with volatility in clients' portfolios. It gets back to having a steady hand on the tiller in knowing when to tilt portfolios a little more aggressively or a little less aggressively and looking at areas of the market where we see potentially out-sized opportunities.

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Podcast transcripts are provided as a summary of the conversation and have been lightly edited for the written medium. The transcript is not a verbatim representation of the interview.
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