5 things advisors can look for from a Democratic Congress
What retirement advisors can expect from a Biden administration and a slim Democratic majority.
With the January election of Jon Ossoff and the Rev. Raphael Warnock, the first Democrats to win Senate positions in Georgia in 20 years, the party now has a majority in the Senate. However, Brad McMillan, chief investment officer at Commonwealth Financial Network, tempered elation over the historic wins with a reminder that Democrats have a smaller majority than they did in the last Congress. Major policy shifts aren’t likely, even with a new party in both chambers.
Related: New PPP loans: Questions and answers
“What I do not expect to see are policies that are wildly out of the mainstream. Even in a blue Washington, there simply aren’t the votes,” McMillan wrote in a commentary published the day after the runoff election in Georgia.
With that in mind, what can retirement advisors expect from a Biden administration and a slim Democratic majority?
1. DCs and 401(k)s
While campaigning, President-elect Joe Biden proposed equalizing savings incentives in defined contribution plans for middle-class workers.
A NAPA report suggests a proposal for automatic 401(k)s might also gain new traction, as well as tax incentives for small businesses that create retirement plans, and an increased payroll tax for high earners or financial transaction tax to bolster Social Security.
“Once Biden is sworn in and his cabinet begins to take shape, the administration will propose a fiscal year 2022 budget that will provide more details for his policy proposals and give Congress a chance to review and develop its own proposals. Had Republicans retained control of the Senate, much of Biden’s tax agenda would have been dead on arrival, but that does not appear to be the case now,” the association wrote.
2. Tax policy
Howard Gleckman, senior contributor at Forbes, believes the new administration’s more ambitious tax proposals won’t go anywhere.
“Even with a Democratic majority, it is hard to imagine this Congress raising taxes on corporations and high-income households by $3 trillion over 10 years as Biden proposed in his campaign, though some corporate tax hikes could be in the offing,” Gleckman wrote. “By contrast, some of Biden’s proposed $1 trillion in tax cuts for low- and middle-income households could win passage.”
Among those, Gleckman wrote, are an expansion of some refundable tax credits, like the Earned Income Tax and Child Tax credits, and some new retirement savings incentives for low-income workers.
3. Regulations
The NAPA report further observes that just as the Trump administration and Republican Congress overturned an Obama-era DOL safe harbor rule that exempted state auto-IRA programs from ERISA oversight, the Biden administration and Democrat Congress could overturn the recently finalized ESG rule.
Related: Is the playing field tilting further in favor of ESG investing in DC plans?
4. Committee support
NAPA’s report also notes that Sen. Ron Wyden, who is replacing Sen. Charles Grassley as chair of the Senate Finance Committee, “has a bipartisan streak when it comes to retirement policy.” In fact, Wyden worked with Grassley and Sen. Orrin Hatch to sponsor the Retirement Enhancement and Savings Act, which “formed the basis of the SECURE Act.”
Forbes’s Gleckman agrees that compromise-oriented committee leaders like Wyden and Rep. Richard Neal are likely to help bring life to more moderate tax proposals.
5. Social Security
As baby boomers continue to retire, the number of workers supporting retirees drops from three to two, according to Eugene Steuerle, co-founder of the Urban-Brookings Tax Policy Center. Steuerle told Marketplace that this transition, which started in 2008, will continue to 2035. Before long, Social Security and Medicare won’t be able to pay benefits.
“We’ve been talking about this for 30 years, we’ve known this for over 30 years, it’s always been scheduled not to be able to pay benefits in the future, but now, that inability to pay the benefits falls within the 10-year budget window that the president puts forward when he does his budget,” Steuerle said.
Millennials, an even bigger generation than the boomers, are scheduled to get twice the benefits over their lifetimes from Social Security and Medicare that today’s retirees get, Steuerle said. That’s because of wage growth, longer lifespans over which to pay benefits, and increasing health costs, he explained.
READ MORE: