Household expenditure in the US is significant, and is considered to be one of the largest in the world. That makes the strength of the US economy a key issue for global as well as domestic businesses. Given that, what does a Biden presidency mean for the consumer, leisure and retail industry – especially at a time when many businesses are still reeling from the impact of COVID-19?
It’s a question that we tackled at our most recent ‘In conversation’ event. I co-hosted the session alongside Nick Wansbury, who shared his views as Partner in Consumer & Retail Deal Advisory in the UK. We were also joined by colleagues from the US – Matt Kramer, Partner, National Sector Leader for Consumer & Retail and John Gimigliano, Principal-in-charge, Federal Tax Legislative and Regulatory Services – who provided their insights on what we can expect.
Here’s my quick summary of what we discussed.
Will tax and other costs increase for businesses with US operations or HQs?
Many businesses we’ve spoken with are concerned about President-elect Joe Biden’s plan to increase the corporate income tax rate in the US from 21 percent to 28 percent – and what that means for their global effective tax rate. Whilst businesses are still recovering from the impact of the pandemic – and unsure what that recovery will look like – any tax increases are a worry. But there’s a big question mark about how much free reign Biden will have to put his plans into action.
While the Democratic party has retained control of the House of Representatives, we’ll be waiting until a run-off in Georgia on 5 January 2021 to find out who has control of the Senate. Businesses might be happy if the Republicans maintain control as that is likely to constrain tax changes. Democratic control of the Senate could, however, be good news for UK and Global businesses looking to invest in the US as Biden’s tax plans provide incentives for inbound investment and for hiring in the US.
Whatever the result, we are likely to see greater operational costs for businesses in the form of higher minimum wages (which would likely have come into effect under Trump, too), extended paid family and medical leave plans, and a push on Environmental, Social and Governance (ESG).
How could a large stimulus package help consumer businesses?
Who ends up in control of the Senate will determine how easy it is for Biden to push through a proposed $2 trillion stimulus package. The impact of this package on consumer, retail and leisure businesses will then depend on how the money is spent. Direct payments to individuals (probably of around $1,200) together with unemployment insurance could see increased spending, which would benefit consumer businesses. But the Democrats are asking for additional money for state and local governments and it’s less clear how much of a stimulus this would give to consumer markets.
That said, any investment in infrastructure could be good news for consumer businesses. As they’ve adapted to the impact of the pandemic, retailers have offered more ship-from-store, and buy online and pick-up at store services. That means more long-haul traffic and more trucks on the roads – so improvements to roads and rail would be welcomed.
Trade deals, multilateralism and easing of immigration
Many of our clients in consumer, retail and leisure are less focused on the laws and regulations and more on there being good international relations and positive political support. We can expect a more multilateral approach from Biden. And we can also expect a Democratic party that’s pro-free-trade – a position it found itself in due to Trump being so anti-trade. We could, however, see a US-UK trade deal pushed back into 2022.
Despite all the uncertainty, many of our domestic clients in the UK are still positive about the opportunities that exist in the US. In the past, many have looked at a market entry position in the US as being something of a Holy Grail that can help them accelerate growth – and that hasn’t changed. Brexit could make the US even more attractive for UK businesses.
An easing of immigration under a Biden administration could also be encouraging for inbound investors. And it would help in areas of the consumer industry where there continue to be skills shortages, despite a rise in unemployment.
We’ll have to wait to know for sure
We’ll have to wait until January for a clearer picture of what we can expect from US politics. Of course, the biggest short term issue facing many businesses within the sector will still be the pandemic. Tackling that will be the priority for the next US President. Whilst two potential vaccines hopefully points to more positive times ahead there is a long way to go still.
We host our ‘In conversation’ events once a month, focusing on the key topics at the time. If you would like to be invited, please email Catherine Walsh for more details.