Americans are once again faced with the prospect of a Trump presidency – but what does this mean for their finances?
Money will be an important theme in the elections. A Gallup poll shows that a third of voters think economic problems are the most important problem facing the country.
With inflation still high and interest rates at a 22-year high, household finances are a contentious issue for Biden. By comparison, a recent survey from CBS News and YouGov found that nearly two-thirds of registered voters thought the economy was good under Trump.
Here, DailyMail.com looks at what a second Trump term could mean for the average American household…
Americans are once again faced with the prospect of a Trump presidency – but what does this mean for their finances?
With inflation still high and interest rates at 22-year highs, this is proving to be a weakness for Biden and a strength for Trump.
Extension of the Tax Cuts and Jobs Act of 2017
Trump introduced sweeping changes to the tax landscape in 2017 through the Tax Cuts and Jobs Act (TCJA).
This included lowering individual income tax rates, nearly doubling the standard deduction and increasing the federal estate tax exemption. Corporate tax was also reduced to 21 percent, the lowest level since 1993.
However, these cuts are set to expire on January 1, 2026 – a date financial planners are calling “Sunset Day.”
Certified Public Accountant Tom Wheelwright said anyone with a 401(K) will be hit by corporate tax increases
As a result, income tax brackets could return to pre-2017 levels, which were almost 3 percent higher. For example, the current top tax bracket is 37 percent, but this would rise to 39.5 percent if the law is not extended.
These cuts saved the average American household $1,600 each, according to U.S. State Department estimates Center for Tax Policy.
Trump has not confirmed whether or not he will extend the TCJA and experts are divided on whether he will. A research note from Capital Economics said there is little “room” for Trump to be so generous.
However, financial planners told DailyMail.com they expected the former president to stick to his flagship policies.
It’s also possible that Biden will extend many of the cuts, but he has made clear he plans to raise corporate taxes to 28 percent.
Certified public accountant Tom Wheelwright told DailyMail.com: ‘Corporate taxes affect all small businesses and even anyone with a 401(K), because higher taxes will erode corporate profitability and therefore hit stocks.
“So anyone who invests in the stock market will benefit if Trump commits to low corporate taxes.”
New Jersey financial planner Marissa Reale added: “We have seen in recent years that Biden is much less business-oriented than Trump. So it will be small businesses that will win if Trump returns to power.”
The law also doubled the lifetime inheritance tax deduction from the 2017 value of $5.49 million for individuals to $11.18 million – and this has continued to rise in subsequent years.
Under current rules, an individual can transfer $12.92 million and a married couple can transfer $25.84 million to heirs before being hit with federal estate taxes.
If the TCJA is repealed, the exemption could effectively be cut in half, leaving an individual with a taxable estate worth more than about $7 million subject to federal estate taxes if they don’t plan ahead.
Upturn in inflation – and higher with longer interest rates
Trump made international tariffs a focus of his first term and he promises to do the same again.
Between 2017 and 2021, his government implemented llooks at China, Mexico and the European Union, among others. Biden has kept some of those tariffs in place.
Speaking to CNBC on Monday, Trump told reporters: “I’m very much in favor of tariffs.”
He has proposed a base tariff of 10 percent on all U.S. imports and a tariff of 60 percent or higher on Chinese goods.
The latest data puts the Fed in a tough position about when to start cutting interest rates — which are currently at their highest levels since 2001
Inflation rose slightly to 3.2 percent in February, as prices were pushed up by house prices and gas prices
However, researchers at Capital Economics warned that this would only make goods more expensive for Americans, leading to a rebound in inflation. Annual inflation stood at 3.2 percent in February, down from a high of 9.1 percent in June 2022.
Rising prices will in turn keep interest rates high, which will have a knock-on effect on mortgage and credit card rates. Currently, the Fed’s interest rate is between 5.25 and 5.5 percent, the highest rate since 2001.
The Capital Economics note said: “His rate proposals would likely trigger a rebound in inflation, which could convince the Federal Open Market Committee to raise rates.”
Dollar stronger longer
An unexpected benefit of high interest rates is the fact that they tend to strengthen the U.S. dollar.
This is because higher yields attract investments from investors abroad who are looking for higher returns on bonds.
If, as experts predict, Trump’s foreign tariff policies push up inflation and keep the Fed in its tightening cycle, then the dollar will remain “stronger for longer” or “even” rise significantly, according to Capital Economics.
Paxton Driscoll of Florida Financial Advisors said, “From a financial perspective, I don’t really see many ordinary people losing under a Trump presidency.”
Strong stock market
Regardless of who wins the election, economists generally agree that the stock market will remain strong.
The S&P 500 ended 2023 up 24 percent and at a record high. These gains have been fueled by a boom in AI and technology stocks.
The so-called ‘Magnificent Seven’ stocks – including Meta, Google, Amazon and Tesla – saw their value rise by 107 percent last year.
Economists predict that stocks will continue to rise this year, regardless of who is in power. Researchers at Capital Economics said there were no risks associated with a Trump presidency “significant enough to burst this bubble.”
Paxton Driscoll, van Financial Advisors of Floridasaid, “From a financial perspective, I don’t really see many ordinary people losing under a Trump presidency.”