Post-Election Preparation

With the election now decided, the process has begun of evaluating the potential impact that the Trump administration might have now that he will have a Republican-controlled House and Senate, as well as a conservative judiciary. SFP remains attentive to how these possible changes may affect our clients, and while it’s impossible to predict exactly how the new administration might proceed, we can make some general inferences based on campaign platforms and political ideology. Read on for a few examples of the items we are tracking.

Taxes and Estate Planning

Context: In 2017, the Trump administration and allied Congress passed the Tax Cuts and Jobs Act (TCJA), which made sweeping changes to many lines in the tax code, such as cutting tax brackets while adding new tax deductions (but eliminating others). Some of those changes were made permanent, but others (such as reduced tax rates, and the “Qualified Business Income” deduction) were scheduled to “sunset” at the end of 2025. Many expect that most or all of the items scheduled to sunset will be extended or made permanent, depending on the projected costs of doing so, which may be as high as $7.75 trillion over 10 years based on Trump’s proposals.

While the Republicans will have a united front in Congress and the executive branch, the policy writing process may reveal some disagreements between those in the Republican party who believe that “pro-growth” deficit spending (such as tax cuts) does not need to be offset by reducing spending on other budget items (or by increasing enforcement of tax evaders), contrasting with those who believe that “pro-growth” deficits do need to be offset. There may also be disagreement within the party as to whether tariffs should be enacted in any new tax bill as an “official” offset. Republicans have stated they aim to pass tax legislation within the first 100 days after inauguration, but it may take longer for all of the details to be hammered out.

Additionally, the TCJA expanded the child tax credit from $1,000 to $2,000 per child, but that provision sunsets at the end of 2025. Trump could extend that cut or potentially expand it further; J.D. Vance has mentioned $5,000 per child.

Another provision of the TCJA was a doubling of the estate and gift tax unified credit, which will be $13.99 million in 2025. This unified credit is the amount that an individual can gift or bequeath to beneficiaries during their lifetime or upon death without incurring any gift tax or estate tax. It is expected that this inflation-adjusted doubled limit will continue to increase during Trump’s term, rather than sunsetting at the end of 2025 as was originally passed in 2017.

Impact: If tax brackets remain lower for longer, the urgency of converting pre-tax assets to Roth is reduced but remains important, and would likely result in lower lifetime taxes paid, especially if tax rates do increase again in the future. Also, it likely remains inadvisable to make inter vivos gifts of appreciated securities (that is, gifting property while still alive if that property has grown in value since purchase), as doing so doesn’t improve the after-tax value of an inherited estate but does make the step-up in cost basis unavailable at death.

Social Security and Medicare

Context: Trump has proposed eliminating taxes on Social Security benefits, and analysts expect no significant changes to Medicare.

Impact: Such a tax cut would have immediate beneficial effects for those who are currently receiving benefits, but unless other measures are taken to shore up the stability of the program, the Social Security trust funds would deplete sooner than currently projected and therefore benefits in the future could be reduced. We continue to recommend a conservative Social Security assumption in our clients’ financial plans that takes into account the uncertainty of future costs and benefits program, which may be exacerbated if Trump’s proposals are enacted in the absence of offsetting remedies.

Health Insurance

Context: The Trump campaign didn’t remark on any specific plans to amend or replace the Affordable Care Act (also known as Obamacare), but Trump has said he wants to make healthcare more affordable and promote competition and choice.

Impact: While there aren’t specific proposals to evaluate currently, non-action by the new administration would likely increase health insurance costs due to the expiration of enhanced premium tax credits that were passed in 2021 and extended until the end of 2025 with the Inflation Reduction Act of 2022. It’s also unknown whether any new legislation might weaken protections for people with pre-existing conditions or increase the number of people without health insurance coverage, which could increase healthcare costs for all.

Inflation

Context: There has been much talk about the potential impacts of Trump’s plans to impose additional tariffs, with economists generally agreeing that Trump’s proposals would likely increase inflation in the near-term. Higher inflation may spur the Fed to increase interest rates again, making investment more costly and therefore disincentivizing the kind of innovation and construction that would be needed to increase on-shore manufacturing capacity (which was a primary driver of proposing tariffs in the first place). Other proposals around mass deportations could increase the cost of food and housing due to the resulting labor shortage. Higher housing prices may lead to increased property taxes, which may help to temper the inflationary impact of federal income tax cuts, tariffs, and mass deportations.

Impact: The kind of long-term investing that SFP adheres to has historically been a good hedge against inflation. Should inflation rear its head again and the Fed raises interest rates, stocks and bonds may temporarily decrease in value, offering an opportunity for investors to buy at lower prices, as long as they stay disciplined and consistent in their regular contributions to their investments. With higher interest rates, retired investors may be able to find more appealing yields than they would otherwise.

As the new administration’s priorities become clearer and more details are released, we will continue to remain attentive to the potential impacts these new policies may have on our clients. Non-stop news coverage of politics can make it difficult to separate the signal from the noise, and we’re here to help our clients navigate the shifting landscape as it becomes more known.

https://www.wealthmanagement.com/estate-planning/impact-election-results-estate-planning

https://www.thinkadvisor.com/2024/11/15/republican-sweep-strengthens-trumps-tax-cut-dreams/

https://www.cnn.com/2024/11/16/business/financial-impact-trump-administration/index.html