As election day unfolds, American voters are not just deciding their next leader but also the potential future of tax policies that could significantly impact investors and taxpayers alike. The Tax Cuts and Jobs Act of 2017 (TCJA), enacted under former President Donald Trump, introduced substantial tax reforms, including reduced tax brackets, increased standard deductions, expanded child tax credits, and elevated estate and gift tax exemptions.
However, many of the individual provisions outlined in the TCJA are set to expire after 2025 unless Congress intervenes, creating a pivotal issue for the incoming president. Policy experts warn that the upcoming tax landscape will be complex, with several provisions scheduled to sunset, adding uncertainty to fiscal planning.
Potential Tax Increases on the Horizon
The Tax Foundation estimates that without extensions to the TCJA, over 60% of taxpayers may face increased tax burdens beginning in 2026. Yet, the specifics of which provisions Congress might choose to extend remain unpredictable, particularly given the shifting dynamics of the Senate and House. Compounding this uncertainty is the growing concern over the federal budget deficit, which has surpassed $1.8 trillion for fiscal 2024, complicating negotiations around any potential tax changes.
In anticipation of potential tax rate hikes, many investors are proactively adjusting their income strategies, accelerating income realization into 2024 and 2025. Financial experts highlight that if Congress does not act, income tax brackets will revert to previous rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% post-2025.
Impact on Retirement Planning
For retirees, the implications could be particularly significant, especially for those with large pretax retirement accounts subject to required minimum distributions (RMDs). Starting in 2023, most retirees are required to begin taking RMDs at age 73, which could push them into higher tax brackets if rates increase, affecting their net income and financial stability during retirement.
Diverse Tax Profiles and Strategies
As advisors implement various tax strategies, others are conducting analyses to prepare for the anticipated changes stemming from the TCJA. “Every tax profile is different,” stated Mark Baran, managing director at CBIZ’s national tax office, emphasizing that the impact of these tax changes will vary widely among individuals and families. He cautioned that while some may see substantial shifts in their tax obligations, others might experience little to no change.
Regardless of the election outcome, advocacy groups are already gearing up to lobby lawmakers regarding specific TCJA provisions, adding another layer of uncertainty to the landscape. Baran noted, “Pulling the trigger to do something is a big decision,” suggesting that many potential changes may remain on the table for now.
An exception to this cautious approach could be seen in estate planning, which typically necessitates a multi-year strategy. As tax laws evolve, individuals will need to stay informed and adaptable, ensuring that their financial plans align with the changing tax environment following the election.
