Quick Take: Stimulus, Taxes and Portfolios

Key takeaways on the new administration’s policy priorities and what investors should watch.

On January 20, President Joe Biden was sworn into office. His term begins at a pivotal time – the country is still in the throes of the COVID-19 pandemic, with cases skyrocketing and the economy struggling to regain its footing.

But with the vaccine rollout picking up steam, brighter days could soon be ahead. Our forecast at BNY Mellon Wealth Management is that, by the middle of 2021, economic activity should reach near pre-crisis levels. Still, getting to that point relies on several factors falling into place, policymaking being one of them.

“From a legislative perspective, the economic aid package is the top priority of the Biden administration.”

In a January 25 webcast, Leo Grohowski, Chief Investment Officer at BNY Mellon Wealth Management, and Dan Clifton, top-ranked Washington policy analyst and Head of Policy Research at institutional brokerage and advisory firm Strategas Research Partners, discuss the new administration's policy plans and the impact on planning and portfolios.

Here are three key takeaways.


The $1.9 trillion stimulus package is unlikely to pass in its current form.

Just before his inauguration, President Biden proposed a sweeping $1.9 trillion economic package to aid families and businesses through the pandemic. The plan includes direct payments of $1,400 to individuals, a weekly $400 federal unemployment supplement to begin when the previous $300 supplement expires, provisions for rental assistance, low-interest loans for small businesses and a national vaccine distribution program.

Republican resistance to the size of the package means Democrats will likely have to use the budget reconciliation process to pass the stimulus; this would require 51 votes in the Senate as opposed to 60 (Democrats currently hold 50 seats in the Senate, with Vice President Kamala Harris the deciding vote in any tie). But Clifton warns that the budget reconciliation process is very restrictive, used only to pass taxes and mandatory spending, which would mean other provisions that are currently rolled into the package – such as an increase the federal minimum wage – would likely be cut.

In any case, it’s very likely that some form of stimulus will be passed in the first quarter. “From a legislative perspective, the economic aid package is the top priority of the Biden administration,” Clifton says.


Some tax increases will face more resistance than others.

President Biden’s stimulus measures, along with the spending he plans to do on infrastructure and climate change, are expected to be offset by tax increases on high earners. One of the taxes in the crosshairs in the capital gains tax. During his campaign, Biden advocated for taxing long-term capital gains and qualified dividends at the ordinary income tax rate of 39.6% – up from 23.8% – on income above $1 million. Historically, a major increase in the capital gains rate has had detrimental effects on capital growth, which is why the rate hasn’t moved above 30% since 1978.

Clifton says that if a capital gains increase does get passed, it’ll be in the range of 25% to 28% and likely won’t be on the table until the economy begins to stabilize in the second half of the year, giving investors time to work with their wealth managers on planning. Clifton also recommends investors pay attention to possible increases in the estate tax and says there’s a low probability of any tax increase being retroactive to January 1.


Investors should diversify and look for new pockets of opportunity.

One trend that will continue to become more important as the year progresses is the importance of diversification. “We are seeing the markets broaden out,” says Grohowski. For the 10 years ending December 31, he says, the annualized return of the S&P 500 was about 14%, which meant investors could put money into an ETF or index fund that replicated the S&P 500 and expect a very good return. But the trends influencing the market are shifting. “I think diversification is going to be important. I think some exposure to commodities will be important. And for those who can afford it, exposure to the private markets.”

Finally, investors may benefit by paying attention to sectors that are poised to do well under the new administration. Clifton points to healthcare as one such opportunity, due to a few factors: 1) There will be more COVID-19 spending, which ultimately benefits companies; 2) It’s looking less likely the Democrats are going to create a public option to compete against the private sector; 3) It’s looking more likely the Democrats will push for expanding the Affordable Care Act, which is actually good for the market. “The market was so worried in 2020 about Democrats winning and what they’d mean for markets. And yet healthcare one of the best performing sectors since the Georgia election,” he says.

For more, watch the full webcast here.

You will need to be logged in to your BrightTALK account in order to view the webcast replay. If this is your first time watching a BNY Mellon Wealth Management webcast through BrightTALK, you will be required to create an account.

  • This material is provided for illustrative/educational purposes only. This material is not intended to constitute legal, tax, investment or financial advice. Effort has been made to ensure that the material presented herein is accurate at the time of publication. However, this material is not intended to be a full and exhaustive explanation of the law in any area or of all of the tax, investment or financial options available. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation. The Bank of New York Mellon, Hong Kong branch is an authorized institution within the meaning of the Banking Ordinance (Cap.155 of the Laws of Hong Kong) and a registered institution (CE No. AIG365) under the Securities and Futures Ordinance (Cap.571 of the Laws of Hong Kong) carrying on Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities. The services and products it provides are available only to “professional investors" as defined in the Securities and Futures ordinance of Hong Kong. The Bank of New York Mellon, DIFC Branch (the “Authorised Firm") is communicating these materials on behalf of The Bank of New York Mellon. The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation. This material is intended for Professional Clients only and no other person should act upon it. The Authorised Firm is regulated by the Dubai Financial Services Authority and is located at Dubai International Financial Centre, The Exchange Building 5 North, Level 6, Room 601, P.O. Box 506723, Dubai, UAE. The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the Federal Reserve and authorised by the Prudential Regulation Authority. The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. The Bank of New York Mellon is incorporated with limited liability in the State of New York, USA. Head Office: 240 Greenwich Street, New York, NY, 10286, USA. In the U.K. a number of the services associated with BNY Mellon Wealth Management's Family Office Services– International are provided through The Bank of New York Mellon, London Branch, One Canada Square, London, E14 5AL. The London Branch is registered in England and Wales with FC No. 005522 and BR000818. Investment management services are offered through BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, One Canada Square, London E1C 5AL, which is registered in England No. 1118580 and is authorised and regulated by the Financial Conduct Authority. Offshore trust and administration services are through BNY Mellon Trust Company (Cayman) Ltd. This document is issued in the U.K. by The Bank of New York Mellon. In the United States the information provided within this document is for use by professional investors. This material is a financial promotion in the UK and EMEA. This material, and the statements contained herein, are not an offer or solicitation to buy or sell any products (including financial products) or services or to participate in any particular strategy mentioned and should not be construed as such. BNY Mellon Fund Services (Ireland) Limited is regulated by the Central Bank of Ireland BNY Mellon Investment Servicing (International) Limited is regulated by the Central Bank of Ireland. BNY Mellon, National Association is not licensed to conduct investment business by the Bermuda Monetary Authority (the “BMA") and the BMA does not accept responsibility for the accuracy or correctness of any of the statements made or advice expressed herein. BNY Mellon is not licensed to conduct investment business by the Bermuda Monetary Authority (the “BMA") and the BMA does not accept any responsibility for the accuracy or correctness of any of the statements made or advice expressed herein. Trademarks and logos belong to their respective owners. BNY Mellon Wealth Management conducts business through various operating subsidiaries of The Bank of New York Mellon Corporation. ©2021 The Bank of New York Mellon Corporation. All rights reserved.