Who is in office as of Jan. 20, 2021, will affect tax policy. Tax policy will affect the appetite for purchasing airplanes by people in a position to buy. It will also affect the stock market, which will in turn have a direct impact on the aircraft market.
Let’s start with tax policy. Now that we know Joe Biden and Kamala Harris will be the next president and vice president of the United States, it’s prudent to plan for much of the 2017 Tax Cuts and Jobs Act, and its associated bonus depreciation clause, to be revamped or reversed. The bonus depreciation has been a real boon to aircraft buyers as it has allowed aircraft purchased for business use to be depreciated up to 100% in their first year of use. (According to this IRS.gov page, there is a limit. At least that’s how I read it. Here’s my citation. Read first paragraph: https://www.irs.gov/newsroom/new-rules-and-limitations-for-depreciation-and-expensing-under-the-tax-cuts-and-jobs-act)
How quickly the Biden administration can proceed with overhauling the tax code—and if new legislation is even possible—depends on whether it inherits a unified or a divided government. Currently, the U.S. government is divided, with the House of Representatives controlled by Democrats and the Senate controlled by Republicans.
Two runoffs in Georgia on Jan. 5 hold the key to control of the Senate. Should both Senate seats be won by Democrats, that could provide President-elect Biden the momentum to move quickly on his campaign promise of tax reform. Wall Street has already signaled that tax reform would have a negative impact on the stock market. In fact, history reveals that Wall Street has taken the biggest hit when the president and both houses of Congress and the Executive Branch are all the same party. For example, both the Great Panic of 1873 and the Great Depression started during a unified, Republican governments.
In other words, the best thing that could happen for the owner-flown segment of the aircraft market would be divided government under a Biden presidency. It would stall or stymie tax reform, leaving the bonus depreciation in place and thereby placating the stock market.
A rallying stock market has lately incentivized the Federal Reserve to maintain a low-interest rate posture. Low interest rates create a sort of virtuous circle. The stock market interprets low interest rates as a sign the Fed is helping to stabilize the economy rocked by pandemic-induced shutdowns. Another strong signal the federal government could send Wall Street that would boost the stock market is a large infusion of federal money in the form of a second major economic relief bill.
The Biden administration has clearly signaled its intentions to sign off on the largest possible economic stimulus bill Congress is willing to pass. Currently the Democratic proposal tops the Republican one by about 1.5 trillion dollars.
The bottom line: if in January 2021 the market is still doing well, and divided government prevails, the forecast looks pretty good. However, if in 2021 the government is unified under one party, it is safe to assume there will be some stock market retraction, at least in the short term.
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