How many times have you heard a talking head or pundit say these words “this is the most important election in our lifetime”?  My guess is more times than you want to count.  I went back through some old clips and found an article by a famous commentator that claimed the contest between President Obama and Mitt Romney was “the most important election since the Civil War(!).”  Seriously?  More important than FDR versus Hoover or even Carter versus Reagan?  I’m sure that we are all in for a ton of articles intoning gravely, in some cases alarmingly, the significance of the upcoming battle between President Trump and former Vice President Joe Biden.  I don’t know if it will live up to that billing, but I do know that this will be an election like none before it (the 1918 Spanish Flu epidemic did not happen in a presidential election year).  The coronavirus has already left a substantial mark on the election and its effects are not fully realized.

 The virus will impact the way campaigns are conducted – Zoom rallies anyone? – and will likely affect the process of voting.  Without question, the looming influence of the virus will be the defining characteristic of the 2020 election. Yet, despite the pandemic, there are some aspects of the 2020 election that are unalterable.  The election will not be cancelled.  Internet rumors to the contrary, November 3 IS happening.  And it will be essentially a familiar binary choice on the ballot between Republicans and Democrats.  Given those constants, the relevant scenarios that could play out are limited.  Trump wins reelection or Biden prevails.  Democrats sweep the Congress, Republicans take over, or status quo split party control continues. 

Elections, as we all know, have consequences and for each scenario different policy outcomes become more likely.  In that respect, the continuing fallout from and government response to the coronavirus will play an enormous role. Big, weighty issues await officeholders next year.  For our purposes, let us narrow the aperture to personal finance.  Specifically, what we think may be in store for federal taxes and retirement savings. 

Whither Taxes?  Up…Up Really High?  Probably not Down.

When you borrow nearly $3 trillion to stave off a depression you help escalate an already tense, uncomfortable national conversation about taxes.  Should the Democrats win in November, future President Biden would inherit an unprecedented fiscal imbalance.  According to government figures the federal deficit – the difference between what it takes in in taxes and what it spends – will be $3.7 trillion next year.  The biggest deficit in American history.  Prior to the COVID-19 outbreak, Biden outlined plans for raising taxes on corporations and wealthy Americans.  Empowered by a Democratic Congress, Biden could increase income taxes on high earners (those with incomes greater than $400,000), raise capital gains tax rates, and increase the corporate tax rate from 21 to 28 percent.  He’s also on record supporting raising payroll taxes to help shore up Social Security and Medicare.  The real question is: does he follow that plan when the economy is wounded or does he temper those inclinations? A Republican controlled Senate could stop some of those proposals, but they can’t stop all of them.  Do Republicans choose to defend corporations over individuals?  Investment income over wages?  How do they propose to restore the solvency of our entitlement programs?  The flipside of the election coin raises a different set of questions but it does not remove taxes from the debate.  Trump, pitted against a Democratically controlled Congress, could fend off calls for raising taxes but what if new revenues were paired with an infrastructure plan?  In the event that the Republicans run the table on November 3, tax increases become less likely.  President Trump’s economic team, particularly Larry Kudlow, has regularly talked about another round of middle class tax cuts. He could fashion a “stimulus” plan that includes more tax relief for the middle class.

Repairing the Cracked Nest Egg.  Retirement Policy in the Aftermath of COVID

For 55 percent of American workers who save through their employers the coronavirus applied a sledgehammer to their retirement plans.  Trillions in savings were lost in the month of March and while markets have rebounded the fragility of the incomplete recovery has people anxious.  For the remaining 45 percent of the workforce, the 62 million who do not participate in an employer sponsored retirement plan or IRA, the grim irony is that they are no worse off in terms of retirement savings.  You can’t lose what you didn’t have in the first place.  So, what are a few of the ideas policymakers could consider that address the coronavirus calamity but also deal with some underlying issues that existed before the crisis?  Democrats may push to make employer plans mandatory as a means to cover more individuals. Republicans could argue for more portable, flexible tax-advantaged savings accounts.  Both parties may endorse catch-up contributions to enable people in their 40s and 50s to put more money in retirement savings to make up for recent losses.  Rules governing mandatory withdrawals may be relaxed.  In addition, policymakers may take a harder look at how our savings incentives are structured.  Is there too much bias toward the wealthy?  Social Security could also be a focal point.  Social Security is the primary source of income for millions of American seniors (12 percent of Americans over 65 receive 90 percent of their income from Social Security), and expanding benefits for low income near retirees could be in the mix.      

Closing Thoughts

Under “normal” circumstances making post-election policy predictions before an election is a dicey proposition at best.  The coronavirus and the scores of things that it affects are a massive wildcard.  Maybe the coronavirus helps reshuffle policy priorities and brings a few more forward.  Maybe it reshapes the debate on issues like health care access and income inequality.  The truth is that it is much too early to tell if the experience is a pivotal moment or just a really, really bad aberration.  Under any circumstance, some constants remain.  People need to be encouraged to make prudent financial decisions that protect them from financial ruin.  New York Life can help with that.  People need to save for their retirement.  New York Life can help them do that and help them live off those savings for the rest of their lives. And no matter what the outcome in November, New York Life will continue to engage with policymakers in both parties to share our expertise and promote solutions to help enhance Americans’ financial security.    

About the Author

Doug Lathrop is a Vice President in the Office of Government Affairs for New York Life Insurance Company.  His primary areas of responsibility include tax treatment of life insurance products and the taxation of life insurance companies.  He works with members of Congress, their respective staff persons, administration officials and other policymakers to articulate New York Life’s point of view on tax policy proposals affecting the company.  He represents New York Life before various trade associations like the American Council of Life Insurers (ACLI) and other business groups.

Prior to coming to New York Life he was a manager of government affairs at a technology company.  He spent 8 years on Capitol Hill working for members of the House Ways & Means Committee.  He has a Ph.D in political science from UMass-Amherst.  


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Doug Lathrop

Media contact
Kevin Maher
New York Life Insurance Company
(212) 576-6955
Kevin_B_Maher@newyorklife.com

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