President Biden just announced the details of his proposed infrastructure spending plan, and it’s a doozy. Featuring over $2 trillion in spending, it comes on the heels of the recently passed $1.9 trillion stimulus package. Regardless of whether Biden’s new plan passes Congress, it nevertheless lays out Democrats’ road map for the future.
While the plan focuses on infrastructure, it still contains significant amounts of spending that could impact precious metals markets, and silver in particular. Here are three ways that passage of Biden’s infrastructure plan could provide a boost to silver.
1. Green Energy Spending
While most precious metals investors focus on silver coins and bars and the investment demand for silver, the fact remains that roughly half of silver demand is the result of industrial demand. An increasingly important part of that demand is coming from the solar industry.
Biden’s infrastructure plan contains $100 billion in spending to update the United States’ electrical grid, as well as a new national standard for energy efficiency and clean energy that would require a certain minimum amount of electricity to be produced from zero-emissions sources such as solar or wind power.
Since silver is the most important metal used in the production of solar panels, a national mandate of this sort could result in a boost in demand for solar panels and, consequently, a rise in demand for silver. Even without a mandate, the increasing demand for solar energy has many analysts speculating that solar panel demand could increase exponentially over the next decade, providing ever more demand for silver.
It isn’t just the solar industry that makes use of silver either. Because of silver’s electrical conductivity and its resistance to corrosion, it is an ideal metal to use in electronic and battery-powered devices. With Biden planning to spend $174 billion to boost the electric car market, that money could very well end up boosting the silver market too.
2. Higher Taxes
One of the dirty little secrets of Biden’s infrastructure plan is how he plans on funding it. According to the New York Times, the taxes Biden plans to raise in order to pay for his infrastructure plan are the largest tax increase since World War II. There are three primary tax increases that could affect investors.
a. Increased Corporate Tax Rate
The United States used to have one of the highest corporate tax rates in the world, at 35%. President Trump pushed Congress to lower that rate to 21%. Biden wants to raise it again, to 28%. While that wouldn’t be as high as it was, it would nonetheless put financial pressure on US companies, at a time when the business climate remains depressed from COVID lockdowns. US consumers will ultimately pay the price for these tax increases, as they will be passed along in the form of higher prices. And the hit to corporate performance could cause stock prices to fall too.
b. Social Security Tax on High Incomes
Social Security taxes currently phase out at incomes over $142,800. Biden would plan to impose Social Security payroll taxes on incomes above $400,000. That could raise hundreds of billions of dollars in additional tax revenue, or at least that’s the plan. Combined with Biden’s plan to raise the highest income tax bracket to 39.6%, that would mean that every dollar made above $400,000 would be taxed at a combined 55.8% after Social Security and Medicare taxation, versus 40.8% today. The likely result would be that high earners could leave the country. Those who remain would likely restructure their compensation so that salaries remain under the $400,000 threshold but they receive more benefits such as stock options, better healthcare, etc.
c. Raising Capital Gains Tax Rates
Biden also wants to raise capital gains tax rates to match income tax rates. Currently long-term capital gains tax rates are 0, 15%, or 20%, depending on your income. Raising those rates to as high as 39.6% would dramatically raise the cost to investors, and could seriously disincentivize current investing methods and cause investors to look to other investment options than just stocks.
Not only could the threat of higher taxation put a damper on investor demand for stocks, it could boost investor demand for silver. That would be due not only to silver’s potential for gains, but also because a business and investment climate depressed by higher taxation would make silver a more attractive investment option.
3. Rising Inflation
We’re already seeing the results of previous rounds of stimulus spending being reflected in higher prices at the pump, at the grocery store, and in housing. Hardly a single facet of our lives hasn’t been affected by the monetary and fiscal tsunami that has overtaken the economy over the past year.
We can’t rule out that the US economy will return to an era like the 1970s, with the stagflation that accompanied it. Higher inflation, rising taxes, and a stagnant economy could become the mark of the 2020s. That type of economic climate and investment atmosphere would benefit precious metals, which could end up being some of the top performing assets of the decade.
The 1970s saw little to no growth for stock markets, while gold and silver exploded in price. The worse the economy gets, the better gold and silver perform, with silver often outperforming gold during precious metals bull markets. If we end up returning to a 1970s type of economy, gold and silver could stand you in good stead when it comes to protecting your investments.
What the Future Holds
If someone had told you at the beginning of 2020 that over the next year the US economy would be locked down and that the national debt would increase by nearly $5 trillion, you might have laughed and thought that was impossible. But that came to pass. Who is to say what the next year will hold?
With this $2 trillion dollar infrastructure plan being proposed, plus the possibility of a fourth round of stimulus checks, there’s no telling when things will stop. Many investors are looking nervously at inflation as prices begin to rise, and they’re wondering what will happen to the purchasing power of their investments.
Now is the time to take stock of your financial situation and figure out how you can protect yourself against rising inflation and a weak economy. If you wait too late, you may miss out on great opportunities to protect your investments with gold and silver. Gold and silver have helped thousands of investors weather financial crises and turbulent economic times. And they could help you too.
If you have savings in tax-advantaged retirement accounts such as a 401(k), IRA, 403(b), or TSP account, you can protect those assets with silver too. By rolling over or transferring those assets into a silver IRA, you can enjoy the benefits of future silver price growth, protect your investments against stock market losses, and maintain the same tax advantages that your current retirement accounts enjoy.
Passive investing may be popular today, but being too passive in the face of growing threats to your savings and investments could cost you dearly. Don’t wait to safeguard your hard-earned wealth. Call the experts at Goldco today and learn more about protecting your portfolio with silver.