If Donald Trump wins the White House again, financial advisors predict it will lead to the renewal of tax cuts at the heart of his signature tax legislation during his first term.
Earlier this week, Trump won the New Hampshire Republican primary, beating former South Carolina Gov. Nikki Haley, 54 percent to 43 percent. It was Trump’s second primary victory, and he is the odds-on favorite to win the GOP nomination.
It’s far too soon to know how a general election against President Biden will play out. But it’s never too early to look ahead to the potential agenda if Trump returns to the Oval Office.
During his campaign, Trump has dwelled mostly on his grievances about the four indictments and 91 criminal charges against him for attempting to overturn the 2020 election results, interfering in the Georgia election, improperly retaining classified documents and falsifying business documents.
He hasn’t spent much time advocating specific policies. But advisors anticipate that he’ll turn his attention in his first year to a litany of tax breaks – including lower individual rates and a higher estate tax exemption – that were part of 2017 tax reform legislation and are set to expire at the end of 2025.
“If Trump wins the general [election], then it’s likely that the House and Senate go Republican as well, and the 2017 tax cuts get extended,” said Paul Schatz, president of Heritage Capital.
Trump likely would want to start a new term by revisiting a first-term legislative victory.
“Given that he put the initial legislation in place, I would guess it’s a high priority to extend [the tax cuts], if he’s back in office,” said Adam Blocki, an advisor at Schechter Investment Advisors.
Vijay Marolia, chief investment officer at Regal Point Capital, anticipates Trump will pursue a “strategic tax policy.”
“If he is elected, he’ll do something to incentivize investments, which will create jobs,” Marolia said. “Tax rates are likely to go higher if Trump is not elected.”
Tax rates are already the lowest they've been in a lifetime. and Trump will likely want to push them lower with a specific group of Americans in mind, said Gary Schwartz, CEO of Madison Planning Group.
“He will make it easier for extremely wealthy people to make a lot more money,” Schwartz said.
The next president will face a burgeoning federal deficit and debt, which should be a limiting factor on tax cuts, said Gene Balas, an investment strategist at Signature Estate & Investment Advisors.
“It depends on how the math works in terms of having a sustainable budget,” Balas said. “I don’t know you can grow your way out of a budget deficit by cutting taxes. Everyone wants lower taxes, but everyone [also] wants government services. You can’t get something for nothing.”
Balas is also skeptical of Trump’s plan to impose a 10% tariff on imported goods. Trump intends for the levy to hurt Chinese producers and lower the trade deficit. Instead, it will make products more expensive for domestic purchasers.
“It would drive up costs for both businesses and consumers,” Balas said.
Biden has a good story to tell about his economic stewardship based on most measures, such as the growth of the economy and jobs. Inflation has been falling, and many economists are now predicting a so-called soft landing.
But the initial spike in inflation coming out of the pandemic will continue to haunt Biden through the campaign because of the stickiness of price increases, Blocki said.
The slowing rate of inflation “doesn’t mean prices are coming down,” he said. “That means the pace at which they are rising has slowed. People still feel [higher prices] every day … at the grocery store.”
As the presidential election heats up, advisors are cautioning clients not to overreact to what happens on the campaign trail. Even though markets have done better under Democratic presidents over the last 100 years, there are too many other factors influencing their direction, Blocki said.
“We tell clients not to make [portfolio] changes based on how they feel about the election,” he said.
Schatz said, “The next portfolio adjustment I make because of an election will be the first.”
U.S. companies will adapt to living with Biden or Trump, as they do with any president.
“No matter who’s in, they’re going to figure out a way to make money,” Schwartz said.
Although it’s fun to speculate about politics, it will take several more months before things get serious, Schatz said. “The markets and the economy do not care about the election until you get to Halloween,” he said.
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