Illustration: Eniola Odetunde/Axios
We're 40 days away from the election, which means we're between 40 and 80 days away from knowing who won the election.
What happens next: The stock markets, which have spent most of 2020 divorced from the real economy, may tank — setting up a chain reaction that could impact everything from high-profile IPOs (e.g., Airbnb) to private market fundraising (denominator effect) to pending mergers (Delaware Chancery Courtnip).
Scenario: Current polling suggests the likelihood of a President Biden and decent odds of a Democrat-controlled Senate.
- Biden's economic plan includes a partial repeal of the 2017 tax cuts, plus an elimination of preferential treatment for capital gains for those making over $1 million per year. It also would repeal the 2017 income tax cut for those earning more than $400,000 annually, effectively doubling what some currently pay on capital gains.
- Those proposed changes could spark a massive sell-off, with wealthy investors seeking to lock in 2020 gains at a much lower tax rate.
- It's possible that Biden and Democrats wouldn't immediately pursue new tax policy, given that we're in the midst of a recession, or that changes wouldn't apply to 2021 earnings. But investors won't know for sure come Nov. 4. Or Nov. 24.
To be clear: This isn't an argument for or against the sagacity of Biden's tax policy. It's just hypothesizing short-term impacts.
- Downside: Outside of the downstream issues for deal-makers, Axios Markets editor Dion Rabouin makes a compelling "wealth effect" argument that stock market performance has been psychologically valuable during the pandemic (even for those without direct market exposure).
- Upside: This artificial optimism is a big reason why Congress has been unwilling to work out a new economic stimulus. Remove it, and the market's loss could lead to desperately needed help for small businesses, consumers, schools, etc.
Wildcards: President Trump certainly could win re-election, thus negating all of the above. Plus, there's the possibility of near-term vaccine approval and distribution, which should have a much more significant economic impact than would tax policy.
The bottom line: Elections have consequences.
Editor's note: An earlier version of this story misstated the income threshold at which Biden has proposed changing capital gains rates.