Post-Election Financial Landscape
Now that the election is in the rearview mirror, the preparation is underway by President Elect Trump to resume the reins of power and attempt to deliver on the promises he made on the campaign trail. Can he do it?
Challenges of Transitioning from Campaign Promises to Governance
It is often said that campaigning is the easy part, but when you get elected that’s when you have to deliver… and President Elect Trump has a lot to work on in the next four years.
Tax Policy Under Trump: What Can We Expect?
Let’s talk about taxes… in the run-up to the election, there was a lot of concern about what would happen with taxes. The question now is: “what will happen under Trump?”
For conservatives who advocate for lower taxes, it would be easy to say that happy days are here again. But a bit of pumping the brakes might be in order since, at the end of the day, it’s still politics, and politics is always a fluid game of give and take.
Social Security Tax Cuts: A Complex Issue
Trump campaigned on eliminating taxes on Social Security, and it got a lot of attention, especially from those over 62 who participate in the system.
But already 40% of Social Security recipients don’t pay taxes on their benefits since they don’t make enough to get above the tax thresholds that apply to Social Security. So that leaves the 60% who do pay tax. In the worst case, 85% of the benefit paid to those people is taxable and 15% of the benefit is never taxed. So, cutting taxes on Social Security is not as monumental as it would first appear.
The Funding Challenge for Social Security
But here’s the problem:
By law, the taxes paid on Social Security go right back into the trust fund that is responsible for paying future benefits. And, with the system already set to deplete its reserves in 2033, it will be a hard argument to cut taxes and make bad matters worse by moving that date of depletion forward by any measurable degree.
The Trump administration would have to find a way to make up for the impact of that tax cut before it is likely to have the political strength to make it through a favorable Republican majority in either chamber of Congress.
Likely Extension of the Tax Cuts and Jobs Act
What is likely to happen is an extension of the Tax Cuts and Jobs Act that passed during the first Trump administration. That law lowered the tax brackets to their current level, increased the standard deduction, and gave a tax break to small businesses. It’s scheduled to sunset in 2025. If that sunset were to happen, taxes would go back to where they were in 2017, and a lot of the benefits would go away.
With the Senate and House aligned philosophically with the idea of keeping taxes lower for longer, the extension of the TCJA is on our schedule as a probable win for the Trump administration.
Reducing Government Spending: An Uphill Battle
Finally, the big question is: how much will Trump, Elon Musk, and Vivek Ramaswamy be able to reduce the size of government? With the deficit spending that has become the norm in Washington, any hope of meaningful tax reduction would have to come with dramatically lower expenditures in the future.
This is a battle that is destined to be fought in the trenches for much of the next four years. The headwind here is when the cuts that this group is intending to make actually impact spending that benefits the congressmen and senators back in their home districts. As they say, that’s when things go from politics to meddling, especially when the homefolks get stirred up about their favorite program being cut.
GenWealth’s Commitment to Your Financial Independence
Two things are certain: it will be an interesting game to watch, and we at GenWealth will be here to help you make sense of it and how it might make an impact – positive or negative – in your quest for true financial independence.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Independent Advisor Alliance. Independent Advisor Alliance and GenWealth Financial Advisors are separate entities from LPL Financial.
