Potential Election Impacts on the Private Client Sector
With President-elect Trump announced as the winner of the 2024 election, the landscape of U.S. policy is poised for potential shifts that could significantly impact individuals and families. The Trump administration has expressed its commitment to reducing federal oversight and enacting business-friendly tax policies. Trump’s approach could lead to a different set of economic changes, with significant consequences for businesses and investors.
To a large degree, the extent to which the Trump administration will be able to enact its plans will depend on the outcome of the congressional elections, but read on to discover the potential changes and their implications.
Estate and Gift Tax Impacts
Trump is expected to push for the permanent extension of the tax cuts introduced by the 2017 Tax Cuts and Jobs Act. This would solidify several significant changes, including lower personal income tax rates and the doubling of lifetime exemption amounts for gift, estate and generation-skipping transfer (GST) taxes. These cuts are currently set to expire at the end of 2025, making their extension a legislative priority for the Trump administration. However, any permanent extension would require congressional approval, which could be a contentious process.
Reclassification of Tip Income and Social Security Benefits as Tax-Exempt
Trump has proposed eliminating taxes on tips and overtime pay, a move that could reduce federal revenues by US$150-250 billion over the next decade. This policy could lead employers and workers to reclassify wages as tips where possible, further increasing the federal deficit. Notably, Trump has not indicated support for raising the federal minimum wage. If the federal minimum wage were increased, employers would face higher operating expenses, potentially leading to job losses.
Trump has also proposed making Social Security benefits tax-exempt, a move that would increase benefits for 40 percent of current recipients, according to the Social Security Administration. Currently, earnings up to US$25,000 are subject to a 50 percent tax rate, and those earning over US$34,000 pay 85 percent. If implemented, this policy will likely increase disposable income for many retirees, potentially boosting consumer spending. However, it could also lead to a substantial decrease in federal revenue, exacerbating the federal deficit. This policy will require congressional approval and may face significant opposition due to its fiscal impact.
Corporate Tax Rate and Tariffs
The Trump administration will likely seek to reduce corporate tax rates from 21 percent to 20 percent. Additionally, companies manufacturing their products in the United States could benefit from a special 15 percent corporate rate. These changes aim to reduce business taxation and incentivize onshoring or U.S. investment. Like the extension of the 2017 tax cuts, these changes will also require congressional approval.
The Trump campaign has also called for higher tariffs, including tariffs of 10-20 percent on all U.S. imports and 60 percent on imports from China. These changes could create supply chain issues for many companies. There is ongoing debate about the extent to which the executive branch can unilaterally implement tariffs without congressional action, adding another layer of complexity to this policy proposal.
The Trump administration is expected to introduce major policy changes, including a reduction in federal oversight and the implantation of pro-business tax policies. However, these changes may present challenges, particularly in terms of navigating new regulatory landscapes and potential supply chain disruptions.
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