As the presidential election draws near, investors may find themselves overwhelmed by the numerous tax policy proposals put forward by the candidates. This uncertainty can lead to impulsive financial decisions, according to experts in the field. Vice President Kamala Harris, the Democratic nominee, has outlined plans for tax cuts for the middle class while proposing to increase taxes on the wealthiest Americans and corporations. On the other hand, former President Donald Trump, the Republican nominee, aims to extend the tax breaks implemented during his first term and eliminate taxes on Social Security benefits. Additionally, Trump supports imposing higher tariffs on imported goods from other countries.
Financial planner and enrolled agent, Louis Barajas, warns against hasty reactions to these proposals. Barajas emphasizes the distinction between a candidate’s tax proposal and actual legislation. Changes to tax laws require approval from Congress, and the future control of the House and Senate remains uncertain. Not all proposals presented by presidential candidates make it into law, as many are subject to intense debates and negotiations in the legislative process. Therefore, making impulsive financial decisions based on proposed tax policies can be risky and may not align with long-term financial plans.
One of the key factors influencing the proposed tax policies is the expiration of several tax breaks implemented by Trump in 2017. Without intervention from Congress, various provisions, such as lower federal income tax brackets, increased standard deductions, and expanded child tax credits, are set to expire after 2025. In particular, estate and gift tax exemptions pose challenges for families and financial advisors who engage in multi-year planning. The uncertainty surrounding the extension of these provisions adds complexity to financial decision-making and necessitates caution in implementing changes prematurely.
Financial therapist Rick Kahler highlights the role of emotions in driving financial decisions, especially in response to proposed tax increases. The fear of higher taxes may trigger a “scarcity mindset” among investors, leading them to believe that their resources will be significantly diminished. However, Kahler advises against making decisions based on strong emotions, as these decisions may not be aligned with rational long-term financial plans. Instead, he emphasizes the importance of maintaining a calm and rational approach to financial decision-making, even in times of uncertainty.
The impact of presidential election tax proposals on investors is marked by uncertainty and the potential for impulsive reactions. It is essential for investors to exercise caution, avoid knee-jerk responses, and consider the long-term implications of proposed tax policies. By remaining mindful of the emotional factors influencing financial decisions and staying informed about the legislative processes, investors can navigate the complexities of tax policy changes with greater confidence and prudence.