Any time a presidential election changes the direction of policy in Washington, D.C., it’s always a time to pay attention.
With Donald Trump’s victory and Republican control of the House and Senate, this could be a particularly tumultuous transition.
Even before the election, a majority of Americans (about 47%) expected their financial situation to change over the next four years, according to a National Endowment for Financial Education survey. Possible causes include:
It is very likely that some tax reforms will be implemented under the Trump administration.
President Trump left his mark on tax rules during his first administration, helping to enact the Tax Cuts and Jobs Act of 2017. That bill lowered tax rates and capped the deduction for SALT, or state and local taxes, at $10,000 a year, nearly doubling the value of the tax. Standard deduction, elimination of personal deductions, expansion of child care credits, etc. These and other changes have simplified the preparation of tax returns for many people, eliminating the need to itemize them.
The law was scheduled to expire at the end of 2025, when the tax rate would have reached 39.6%, up from the current 37%. It now appears almost certain that President Trump will seek to keep the bill largely intact with strong support from the House and Senate.
Trump’s proposed reforms, including making tip income, overtime pay and even Social Security retirement benefits tax-free, could create even more wrinkles. He also proposes making interest on car loans tax deductible and may support eliminating the current up to $7,500 federal tax deduction for purchasing electric vehicles.
David Kelly, chief global strategist at JPMorgan Assets, said some of these proposals may have a hard time passing Congress, especially if “workers actually earn more. He said some companies encourage people to “abuse the system by claiming it’s for tips or overtime pay.” management. He added that some proposals would be costly in terms of reducing government revenue and increasing the bloated federal debt.
If President Trump raises tariffs, it will be difficult to further control inflation.
Mr. Trump campaigned extensively to convince Americans that lowering the cost of living would be a priority for his administration as price levels and inflation spiraled out of control. However, keeping the inflation rate well below the annual rate of 2.6% will not be easy.
Reducing regulations on businesses may help, but imposing higher tariffs on foreign imports, as President Trump is proposing, means that these taxes are passed on to consumers by intermediaries. This would conflict with the goal of combating inflation.
Another problem with raising tariffs is that they could invite foreign retaliation and “slow down the economy and reduce revenue from other income tax areas,” Kelly added.
Preston Caldwell, senior U.S. economist at Morningstar, predicts that a 10% across-the-board tariff hike and a 60% tax on Chinese goods would reduce U.S. gross domestic product by 1.9%, but President Trump’s They also suspect that the proposal is a ploy to negotiate with the United States. Extract concessions from trading partners. In any case, tariffs are almost universally seen as bad policy among economists, he added.
Nigel Green, CEO of global financial advisory firm De Vere Group, believes many of Trump’s policies, including tariffs, will lead to inflation. “In this environment, the purchasing power of cash is almost certain to decline,” he said in post-election commentary.
Inflation rates during President Trump’s four years were lower than under President Joe Biden’s administration, averaging about 1.9% a year. But over the past eight years, when Democrat Barack Obama held the White House, it has fallen even lower, averaging about 1.4% a year. Americans would be thrilled to see inflation return to one of these levels, but it won’t be easy.
So far, the backdrop looks favorable for the stock market
Mr. Trump’s rally on Nov. 6 was the best single-day result after a presidential election since at least the 1920s, with the Standard & Poor’s 500 index at 2.2, according to Adam Turnquist, investment strategist at LPL Financial. ．It increased by 5%.
Oddly enough, President Biden’s win four years ago was the second-best at 2.2%.
The initial buoyant reaction to Trump’s victory is a bullish sign for the stock market, with most investors expecting the economy to improve going forward, likely due to tax cuts, including for corporations, and loosening of regulations with more mergers and acquisitions. It seems like it is. Acquisition activities.
Nine times in the past, the stock market spiked the day after a presidential election, followed by a 9.5% market gain in the 12 months that followed, according to LPL Financial.
It’s too early to tell whether this positive trend will continue, and investors will continue to revise their outlook. But Dave Sekera, chief U.S. market strategist at Morningstar, cautions investors against getting too caught up in the recent rally. In his post-election presentation, he said he believes the stock market is overvalued, except for small businesses and value stocks.
Rather, Sekera believes it’s a good time to take a hard look at your overall investment allocation and consider adjustments, especially as bonds have slumped recently while stocks have soared. A wise move may be to tweak the mix, for example by cutting out recent big winners in the stock market and reinvesting the proceeds in laggards.
“It might be a good time to lock in profits before the end of the year,” Sekera said.
The election may be over, but the uncertainty is not.
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Contact the author at russ.wiles@arizonarepublic.com.
