Georgia voters will decide the balance of power in Congress in a pair of high-stakes Senate runoff elections that will help determine President-elect Joe Biden’s capacity to enact a progressive governing agenda.
Republicans are unified against Biden’s plans for health care, environmental protection and civil rights. But they might not be able to stop progress on those issues — not to mention tax increases and stronger financial regulation — should Democrats Rafael Warnock and Jon Ossoff emerge victorious today.
Democrats must win both of the state’s Senate elections to gain the Senate majority. In that scenario, the Senate would be equally divided 50-50 with Vice President-elect Kamala Harris serving as the tie-breaker for Democrats.
Democrats already secured a narrow House majority and the White House during November’s general election.
Winning a slim advantage in the Senate might not change what gets enacted, said Diane R. Boyle, senior vice president of government relations for the National Association of Insurance and Financial Advisors, noting that margins are still narrow and the 2022 elections are not that far off.
But tax rates could change significantly if Biden gets a friendlier Senate partner.
“If Georgia elects two Democratic senators, 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,” she said via email.
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. 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.
Department Of Labor Impact
Biden revealed several cabinet nominations in recent weeks, noticeably delaying announcing his choices for controversial positions such as attorney general and secretary of labor. Analysts speculate that Biden might be waiting to see if he gets a more favorable Senate, which vets all cabinet nominations.
Financial services’ executives are most interested in the DOL nominee. Julie Su, California labor secretary, and Boston Mayor Marty Walsh have been mentioned as top candidates for secretary of labor and both have strong ties to rank-and-file workers. Walsh is a former union president.
The next DOL secretary will play a key role in what happens with the investment advice rule the Trump administration published Dec. 15. That rule can, and most certainly will, be withdrawn by the Biden administration upon taking office.
Any rules published in the final 60 days of an administration, known as “midnight regulations,” can be rescinded by the incoming administration.
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.
Even a slim advantage in the Senate might give 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.
Health Care Impact
A Democratic Senate would give Biden an opening to pursue a public option for health coverage, or expand Medicare to Americans age 60 and above. He discussed both ideas on the campaign trail.
The creation of a public option would be a significant long-term challenge for the U.S. health insurance industry, since it could potentially weaken earnings for health insurers, depending on how it is crafted. Moody’s Investors Service concluded as much in a report on how a public option would affect health insurers’ profitability.
“The creation of a government-funded alternative to commercial health insurance remains the largest risk facing the industry in the longer term,” Moody’s assistant vice president Stefan Kahandaliyanage said in the report.
The details of any public insurance option would be crucial, he added, with the impact on private insurers depending on how many individuals previously covered under private insurance would be both eligible for a public plan and likely to switch to it.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at email@example.com. Follow him on Twitter @INNJohnH.
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