Joe Biden is the projected winner of the presidential election. Control of the Senate will not be decided until the runoff elections for Georgia’s two seats in January. The outcome could mean a 50/50 split or divided government. What does this mean for the middle market? RSM is looking at the policy implications and key issues for various industries. This is one in our series of industry-focused outlooks for a Biden administration.
According to Joe Biden’s plan:
The immediate actions of the Biden administration will most likely be focused on efforts to combat the COVID-19 pandemic. A new stimulus package will likely be pursued as one of the administration’s first efforts. If the previously proposed Heroes Act is any indication, this stimulus package could be much larger than the CARES Act passed earlier in the pandemic. Another round of stimulus checks and enhanced unemployment could give a boost to consumer spending in the short term. In addition, the new administration will be focused on fiscal expansion and tax policy. Government stimulus will be imperative to help already-struggling retail, restaurant and food service companies maintain cash flow and adapt to new business models and consumer preferences.
Tax reform will be on the agenda as Biden plans to raise the capital gains tax rate, the personal and corporate income tax rate, potentially introduce minimum taxes on corporations, provide for additional taxes on foreign profits and reduce the lifetime estate tax exemption. The Biden administration is also in favor of raising the minimum wage to $15 an hour. Many states have already instituted a minimum wage above the federal amount. Retailers, restaurants, manufacturers and distributors who hire entry-level employees in the consumer products ecosystem are already feeling the expense pressure. Finally, look for the Biden administration to focus on regulatory policies that improve the environment and sustainability. Consumers continue to purchase goods from companies who have environmental, social and corporate governance strategies, so addressing these preferences is key.
What a closely divided Senate means for the consumer products industry:
With a closely divided Senate, President-elect Biden may not get the tax increases he outlined during his campaign. Increasing taxes while Americans are struggling during a pandemic will be difficult to justify. However, Biden has a history of meeting in the middle; and in order to have the funding for stimulus as well as additional federal spending for other health and environmental programs, he is going to have to increase tax revenue. This could mean that corporations will still see a tax increase; however, again, with a mixed government, this may not occur.
What room for growth or evolution exists in the consumer products industry?
Before the pandemic, trade policy, specifically tariffs, was a major concern among retailers, growers, manufacturers and distributors of all manners of consumer products. Steep tariffs already increased companies’ costs, causing prices to increase for consumers. Pandemic-impacted supply chain disruptions further exacerbated companies’ challenges as they looked for additional sources. Biden has commented that he would repeal tariffs. He aims for a more tempered international approach, collaborating with allies to protect against unfair practices while maintaining a focus on bringing jobs to Americans. Middle market companies should model how changes in tariffs, as well as tax policy, will affect their bottom line.
Another area of both opportunity and challenge for the industry is e-commerce, which has grown exponentially since the onset of the pandemic. Many consumer products companies began or increased sales via Facebook and Amazon. The Biden administration will need to quickly acquaint themselves with the Organization for Economic Cooperation and Development’s plan to negotiate a global digital tax on selected gross revenue of large digital companies that is set to be decided by June 2021. If the majority of countries do not come to an agreement by that point, many European countries have stated they will move ahead with their own digital tax. Either way a digital tax is likely to end up costing consumers.
Additionally, businesses have had to maneuver quickly to not only accept and deliver orders, but also capture consumer data to understand preferences and gain loyalty. Current regulations may not be sufficient for ensuring that consumers have control of how their personal data is used. The Biden administration could help advance federal regulations protecting privacy.
Questions that frame the path forward:
- If coronavirus surges continue into 2021 and an economic pullback is warranted, what should organizations do to prepare? How might the administration help businesses weather this next wave?
- How effective are companies’ current entity structures under new tax policies?
- Have business owners addressed ownership in light of possible estate and gift tax changes?
- Do middle market consumer products organizations have a robust e-commerce strategy in place that addresses customer preferences and business growth needs?
- How have businesses addressed growing cybersecurity issues?
- How do middle market companies continue to develop their safety, environmental and sustainability programs?
