When Governor Larry Hogan announced his budget plan for 2020, he had no idea what was to come of that year. Maryland had a projected annual budget of $45.9 billion; we ended up spending $47.4 billion. If you multiply that by about 60, you will get the total amount that the federal government has spent in the past 12 months just on coronavirus relief!
There have been a lot of questions surrounding the problems with spending since the beginning of COVID, an estimated $5 trillion overall. Some argue that this spending increased inflation and will spike taxes at some point in the future. The year 2021 has been presented with two colliding forces in the market, which has created its current volatility. On one side there are the Democrats and their worry as to how Wall Street will respond to the potential tax increases, further compounded by interest rates going up. The other force is the opening of the country. The year 2021 has already seen an increase of positive movements with restrictions lifting, and it created significant market returns compared to 2020.
There are still key sectors of the economy that need to grow, and each newly opened sector will create positive returns. Looking forward into 2022 is where President Joe Biden’s infrastructure bill, the American Jobs Plan, will have the most impact. The Biden administration thinks that when the economy reopens, the infrastructure will spark the upward and continued growth of the economy.
Here is what the American Jobs Plan looks like, over the next eight years: a tax increase to the wealthy class will fund Biden’s program, which he calls “the largest American job investment since World War II.” The resulting tax increase would offset the recent spending in the next 15 years and could reduce the nation’s overall budget deficit. The plan promises to deliver the following objectives:
The question remaining on everyone's mind is, “How is this going to be paid for?” President Biden has made it his goal to bring the corporate tax rate to where it was before 2017, 28 percent. For reference, the current corporate tax rate is at 21 percent, and before former President Trump made his tax cut in 2017, it was at 35 percent. Biden is also proposing to implement a global minimum tax rate to offset tax havens. If companies pay lower tax rates in a particular country, their home governments could up their taxes to the agreed minimum rate. This would eliminate a company's advantage of shifting profits to a country that is deemed a tax haven.
The infrastructure plan set forth by Biden has caused a division among Americans on what Biden’s definition of infrastructure entails and if his plan is even feasible. Our country has historically been witness to the promise of taxing only the wealthy and large corporations before. The outcome usually ends with the upper class and large corporations seeking loopholes to avoid paying their share.
Ultimately, we want to ensure that the American Jobs Plan will not be financed by more borrowing and that the bill will not fall on the average American.
Stay ahead of the curve by improving the infrastructure of your retirement plan. Throughout this year and into 2022, it’s crucial that your portfolio takes all of these factors into account and you are allocated accordingly. Schedule an appointment with me today to ensure your accounts are in order and you’re ready for the future.
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