On July 21, 20224, President Biden announced that he was ending his reelection campaign. Vice President Kamala Harris is stepping up to the top of the Democratic ticket. According to ABC News, Biden became the 13th president who served fewer than two terms but was not their party’s nominee.
Not since President Lyndon B. Johnson stepped out of the 1968 presidential race has any sitting president declined to run for reelection. The only other instance in the past century was when Harry Truman stepped down in 1952. Those two most recent instances are anecdotes, not data. Still, while not useful, they are interesting. In both Johnson and Truman’s case, their replacements at the top of the Democratic ticket lost their elections; history is not on Harris’ side. But it would be foolhardy to compare those two periods to today and argue that they are similar enough to be meaningfully predictive. The odds of who will win are close to 50/50, if you believe the polls. Below, I will update the odds I am using internally in my scenario planning regarding investment selection and tax planning.
Due to my traveling schedule, I submitted an article for publication prior to Biden stepping down. It compared how the economy would perform under President Trump versus Biden. Due to the possibility that Biden would step down, I wrote in the report, “Given the significant media attention that has been given regarding President Biden stepping down as a candidate, take note that it would be appropriate to swap out the name ‘Biden’ with ‘Candidate-X’ as it is expected that the policy initiatives would remain strikingly similar if not the same.”
The column was retitled “How the Economy Will Perform under Trump vs. Harris.”
Now that we know who will be running at the top of the Democratic ticket, do I stand by the assertion that it is fair to swap out the names “Biden” and “Harris” and expect similar policies? Mostly, yes. I will mention them briefly and as objectively as possible—if you hear a tone of support for one candidate or the other, it is not my intention. I am purposely relying on Moody’s to pull a lot of data because data is not opinion. I am just here to make or protect money based on what happens, not to opine on what should happen.
I will avoid arguments that if Harris supported Biden on something, then she would continue his policies. She is the vice president; she is not going to disagree with the president publicly, even if she does privately. Harris has a history prior to becoming the veep. I examined Harris’ record as California’s attorney general from 2011 to 2017, as senator from the same state between 2017 and 2021, and her 2020 presidential candidacy.
Taxes
As a 2020 presidential candidate, Harris proposed a variety of tax hikes. As president, she would likely extend the Trump tax cuts under the Tax Cuts and Jobs Act for some Americans while allowing them to expire for corporations. Biden wanted to keep the tax cuts for Americans earning more than $400,000 per year; Harris’ tax blueprint during her 2020 presidential campaign called for scrapping all of Trump’s tax cuts except for households earning less than $100,000.
Biden supported raising the corporate tax rate from 21 to 28 percent (lower than the 35 percent during the Obama presidency); Harris said in 2020 that she would raise it back up to 35 percent. Harris’s tax policy would be more burdensome on affluent households and corporations, but it is still directionally similar to Biden’s.
Spending
The additional revenue from higher taxes is expected to fund government spending on a combination of social programs and economic investment, similar to Biden’s agenda.
Trade
Biden kept all of Trump’s tariffs on Chinese goods in place and increased tariffs on $18 billion of imported products from the country. Harris is not expected to strip the Chinese trade tariffs Biden has kept or put in place.
Immigration
Harris will likely continue Biden’s efforts to moderately reduce the flow of migrants across the southern border. The Biden administration has polled poorly on immigration. Although Harris’ effort would still be best described as “moderate,” she would be expected to be more aggressive in publicly celebrating wins at the border if not strengthening actual policy.
Regulation
One of the most significant differences between Harris and Biden will be in regulation. Harris and Biden have both promoted their administration as a champion of consumers and workers at the expense of corporate America.
As California attorney general, Harris came down hard on business, taking legal action focusing on consumer protection, antitrust, and anti-competitive hiring practices. As a senator, she supported bills that, while arguably good for workers, were negative for employers. I expect Harris to be more aggressive than Biden when it comes to government regulation regarding worker and consumer protection. However, I believe Harris understands the benefits to both groups when companies are allowed to benefit from partnerships and economies of scale.
I am going out on a limb here and predicting Harris will fire U.S. Federal Trade Commissioner Lina Khan and Jonathan Kanter, the assistant attorney general of the Antitrust Division of the U.S. Department of Justice. Both have put up significant roadblocks to companies trying to do deals. Firing those two will unleash pent-up demand for mergers and acquisitions.
Scenario Planning Probability Update
The column “How Will the Economy Perform Under Trump vs. Harris?” was written before Biden stepped down. Immediately below are the 2024 presidential election scenarios and their associated probabilities prior to Harris being on top of the ticket for comparison to the updates.
And here are the updates:
There has been a modest shift, suggesting that the odds are still close to 50/50 for who will win the presidency. Overall, replacing Biden with Harris at the top of the Democratic ticket does not yet require any modification of the scenario planning drawn out in the column. I remain invested with an emphasis on large-cap-growth U.S. stocks. However, the odds of experiencing significant volatility throughout the next few months are far higher than 50/50. Historically, August and October are the most volatile months, measured by spikes in the VIX, also known as the “fear index.”
However, it is not all doom and gloom. The graph below from Dimensional shows the hypothetical growth of $1 invested in the S&P 500 from 1926 through 2022, as well as which U.S. president was in office during each year.
I am sure that ideologues could parse any data to support their narrative. But if we are being intellectually honest about it, the graph shows that investors can make money even if the “other” party is in the White House. Asset selection, not the result of the election, has historically had a more significant impact on the performance of investment portfolios.
Allen Harris is an owner of Berkshire Money Management in Great Barrington and Dalton, managing more than $700 million of investments. Unless specifically identified as original research or data gathering, some or all of the data cited is attributable to third-party sources. Unless stated otherwise, any mention of specific securities or investments is for illustrative purposes only. Advisor’s clients may or may not hold the securities discussed in their portfolios. Advisor makes no representations that any of the securities discussed have been or will be profitable. Full disclosures here. Direct inquiries to Allen at AHarris@BerkshireMM.com.
