As the presidential election on November 5 approaches, the financial landscape is filled with questions about how this election impacts financial plans. Recent polls indicate a competitive race between former President Donald Trump and Vice President Kamala Harris. Both candidates are actively campaigning in key swing states, which has raised concerns among investors about the potential impact of the election results on their portfolios.
For many, understanding how the election impacts financial plans is key to making informed decisions about long-term strategy. Given the significant political divisions in recent years, emotions surrounding this election are understandably heightened. In this context, it is essential for investors to remain focused on their long-term financial strategies and not allow political developments to disrupt their plans.
Tax Policy is Uncertain, Especially Relating to Estate Planning
As citizens, voters, and taxpayers, the result of this election could have important implications for our everyday lives. However, when it comes to investment portfolios, political preferences should not dictate decisions. Historically, it is the markets and economic conditions that influence election outcomes, rather than the reverse. Therefore, it’s crucial to participate in the election process without allowing political sentiments to affect financial strategies.
One of the most complex issues related to the election is tax policy. The Tax Cuts and Jobs Act (TCJA) is set to expire at the end of 2025, which introduces uncertainty regarding individual and corporate tax rates and creates a potential “tax cliff.” The candidates have differing views on corporate taxes, individual rates, capital gains, tax credits, and more.
Although it’s tempting to react immediately, it’s important to take a balanced view of how the election impacts financial plans. While taxes undoubtedly affect households and businesses, their impact on the overall economy and stock market is not always straightforward. Taxes are just one of many factors influencing economic growth and investment returns, and various deductions, credits, and strategies can mitigate the effective tax rate.
Currently, tax rates are relatively low by historical standards, regardless of whether the top marginal tax rate is 37% or 39.6%. Given the increasing federal debt, investors should prepare for the likelihood of tax rates rising in the future, whether that occurs after this election or not. Planning for this potential change, ideally with the guidance of a trusted advisor, is becoming increasingly important.
One area where taxes remain particularly low is estate taxes, which apply to the transfer of assets to heirs after death. The Tax Cuts and Jobs Act (TCJA) doubled the estate tax exemption amount, which has been adjusted for inflation to reach $13.6 million for 2024. Without further legislative action, this exemption is expected to revert to its pre-TCJA level—approximately $6.8 million per individual by 2026, adjusted for inflation.
Although estate taxes generate only a small portion of government revenue and affect a limited number of individuals, they have become a contentious political issue. The future of estate taxes will largely depend on the outcome of this election, including the results of Congressional races. For many affluent households, these developments could significantly impact their tax and estate planning strategies.
Global Trade and Tariffs Will Depend on the Election
The candidates also have differing views on potential trade policies, particularly regarding tariffs. While the trend of deglobalization and the reshoring of manufacturing—bringing production closer to the U.S.—is likely to continue, the specific use of tariffs to enhance U.S. competitiveness and generate revenue may hinge on the election outcome. During his administration, President Trump implemented several tariffs, many of which were maintained by the Biden administration.
Historically, tariffs were a significant component of trade policy and a major source of revenue for the U.S. government. However, in recent decades, their role has diminished. The establishment of organizations and trade agreements, such as the WTO, NAFTA, and the USMCA, has helped reduce trade barriers among key partners. Despite this, tariffs are still used periodically to protect domestic industries and intellectual property, including sectors like steel, electronics, semiconductors, and agriculture.
For investors concerned about the possibility of a trade war, it’s important to remember that similar fears in 2018 and 2019 did not result in the worst-case scenarios that many anticipated. During that period, the economy remained robust, with unemployment near historic lows and inflation effectively nonexistent, even late in the business cycle. Ongoing negotiations between key trading partners also alleviated some concerns. As illustrated in the accompanying chart, the U.S. has consistently maintained a trade deficit with many countries across various trade regimes.
The Economy Has Grown Under Both Major Parties
Historically, the economy has shown growth under both major political parties, and bull markets have occurred regardless of who is in the White House. While it might seem counterintuitive, politics typically has a limited impact on the economy and financial markets. More significant factors include the business cycle and broad trends, such as advancements in artificial intelligence and technology, declining inflation, and a robust job market.
Despite the perceived significance of this election, policy changes tend to be gradual due to the checks and balances inherent in our political system. Candidates’ campaign promises often differ from what they can realistically implement.
Regarding taxes, neither candidate is suggesting a return to the high tax rates of the pre-Reagan era, when the top marginal rate reached as much as 94%. Similarly, while tariffs may increase, they are unlikely to rise to the levels seen during the Great Depression nearly a century ago. Keeping these facts in mind is crucial when planning for the next four years.
Keeping Perspective on How This Election Impacts Financial Plans
The upcoming election impacts financial plans in ways that may be subtle yet significant over time. While it’s natural to consider potential policy changes, investors should remember that the economy has grown under both major parties. By keeping a steady perspective, investors can focus on broader, long-term trends rather than immediate political shifts.
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