Potential Election Impacts on the Private Client Sector
As the 2024 election cycle unfolds, the landscape of U.S. policy is poised for potential shifts that could significantly impact individuals and families. With a Harris administration’s focus on increasing tax rates for high earners, implementing new tax policies and providing support for start-up businesses and first-time homebuyers, businesses and individuals alike are preparing for changes that could reshape the economic environment. From higher capital gains taxes to increased corporate tax rates, the implications of these policies are far-reaching.
Conversely, the Trump administration has expressed its commitment to reducing federal oversight and enacting business-friendly tax policies. If re-elected, the administration’s approach could lead to a different set of economic changes, with significant consequences for businesses and investors.
Curious about how a Trump or Harris administration could impact individuals and families? To a large degree, the extent to which either a Trump or Harris administration will be able to enact their plans will depend on the outcome of the congressional elections, but read on to discover the potential changes (and their implications) based upon what the candidates have said.
The Harris campaign has not announced any specific policy proposals relating to estate and gift tax initiatives. However, it has indicated that a Harris administration would be open to lowering the gift/estate and generation-skipping transfer (GST) taxes lifetime exemption amounts, increasing gift/estate and GST tax rates, and limiting the use of grantor trusts and Grantor Retained Annuity Trusts (GRATs).
The campaign’s stance on these tax initiatives suggests potential changes that could significantly impact estate planning. Lowering the lifetime exemption amounts for gift, estate and GST taxes would subject more estates and gifts to taxation, increasing the tax burden on wealthy individuals and families. Additionally, increasing tax rates and limiting the use of grantor trusts and GRATs would further constrain estate-planning strategies, potentially leading to higher tax liabilities and prompting individuals to seek alternative methods to transfer wealth efficiently.
Alternatively, Harris likely would veto any extension of the increased gift/estate and GST lifetime exemption amounts implemented by the 2017 Tax Cuts and Jobs Act. Absent intervening congressional legislation, which must either be signed into law by the president or overcome the president’s veto by a two-thirds vote of the Senate and the House of Representatives, these increased exemptions will expire at the end of 2025.
Lowering the exemption amounts and increasing tax rates would result in higher estate and gift tax liabilities for wealthy individuals. Limiting the use of grantor trusts and GRATs could reduce the effectiveness of certain estate-planning strategies. Consequently, private clients may need to accelerate their estate-planning activities before any changes take effect.
In contrast, 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 a Trump administration. However, any permanent extension would require congressional approval, which could be a contentious process.
If elected, Harris would seek to increase the top capital gains rate from 20 percent to 28 percent for households making more than US$1 million a year, and, possibly, the net investment income tax rate (NIIT) from 3.8 percent to 5 percent for other high earners.
The implications of this policy would be significant for high-earning taxpayers, who would face increased tax liabilities on their investment income. This could lead to a shift in investment strategies, with a potential focus on tax-efficient investments. Additionally, the increased tax burden might incentivize high earners to explore more aggressive tax planning and deferral strategies.
Although the Harris campaign has announced support for a “Billionaire Minimum Tax,” it has not announced policy specifics. One version of the tax announced by the Biden-Harris administration would impose a minimum tax rate of 25 percent on all “income” of taxpayers with a net worth of more than US$100 million, where the definition of “income” is expanded to also mean unrealized capital gains.
Any new tax on unrealized capital gains would require congressional action and could face constitutional challenges. This policy would have a significant impact for high-net-worth individuals, who could see a significant increase in their tax liabilities, particularly on unrealized gains. This could lead to a reevaluation of investment portfolios, and in turn, the policy could face legal challenges, creating uncertainty for affected taxpayers.
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 during his 2024 campaign. If the federal minimum wage were increased, employers would face higher operating expenses, potentially leading to job losses.
Like Trump, Harris has also called for an elimination of taxes on tips and overtime pay, which could reduce federal revenues by US$150-250 billion over the next decade. The implications of this policy would be beneficial for workers in industries reliant on tips, as they would see an increase in their take-home pay. However, employers could adjust wage structures in response to the tax-exempt status of tips, resulting in higher consumer costs. In response, Harris stated that she would work with Congress to draft legislation that mandates an income limit and applies requirements to prevent companies from structuring compensation to take advantage of such a policy.
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 would 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 would require congressional approval and could face significant opposition due to its fiscal impact.
Harris proposes expanding the Earned Income Tax Credit (EITC) and the Child Tax Credit. The implications of this policy would be positive for low- and middle-income families, as expanding these credits would provide additional financial support. Increased credits could also boost consumer spending and stimulate economic activity. The changes would likely reduce the tax liabilities of eligible taxpayers, improving their overall financial well-being.
Harris supports providing a US$25,000 tax credit for first-time homebuyers, spread over four years. This credit aims to increase the affordability of certain homes, which, if successful, may lead to a rise in mortgage loan originations. The financial relief provided by this credit could stimulate the housing market by making homeownership more accessible to first-time buyers.
A re-elected Trump administration would 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 would also require congressional approval.
By comparison, the Harris campaign has proposed a corporate tax rate increase from 21 percent to 28 percent. Higher corporate tax rates would increase businesses’ tax liabilities, potentially reducing their net profits. Companies might reconsider their investment and expansion plans due to the increased tax burden. This change could lead to a reevaluation of corporate structures and tax planning strategies.
The Trump campaign has 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.
Harris has proposed an increase in deductions for business startup expenses from US$5,000 to US$50,000. The implications of this policy would be positive for entrepreneurial activity, as increased deductions could incentivize more new business ventures. Start-up businesses would benefit from reduced initial tax burdens, potentially improving their chances of success, while stimulating economic growth and innovation.
A 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.
A Harris administration is anticipated to introduce substantial policy changes, including higher tax rates for high earners, new tax regulations and extra assistance for start-up businesses and first-time homebuyers. However, these changes may require navigating new regulatory landscapes and potential tax liabilities. Strategic planning and comprehensive due diligence will be essential for private clients to navigate these evolving dynamics effectively.
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