The White House is seen in Washington, DC on July 21, 2024.
Samuel Corum | AFP | Getty Images
Such a book, titled “What to Expect at Election Time,” could serve as an economic primer for a year full of possibilities.
This paper compares the policy platforms and summarizes their respective economic outlooks. It also covers expected market trends and tax and regulatory policy frameworks for the first year of the new presidential cycle. This guide presents macroeconomic and individual sector risk and reward potential.
Of course, things don’t always go according to plan.
Of course, external forces are also at play, ranging from the composition of a new Congress to unforeseen events beyond the control of America’s domestic leadership.
If such a guide were available, it would look something like this:
Republicans, led by presidential candidate Donald Trump, may seek to extend the Tax Cuts and Jobs Act of 2017. They may also seek to further reduce corporate taxes from the current 21% to 15% while imposing tariffs on imports.
Additionally, a second Trump administration could roll back various Biden-era regulations, including clean energy incentives.
In the abstract, one could argue that lower taxes and deregulation are good for business. They would be favorable developments for Wall Street and therefore for financial markets.
But further unfunded tax cuts would increase the national deficit and debt. The U.S. debt-to-GDP ratio stands at 123% in fiscal 2023.
Outright tariffs would be inherently inflationary, economists argue, and could even spark a global trade war that would result in an economic downturn.
With job openings in the US outnumbering the workers, according to the latest data from the Bureau of Labor Statistics, former President Donald Trump has also pledged the biggest mass deportation campaign since the Eisenhower administration.
A large reduction in the labor force will cause both inflation and recession, resulting in stagflation.
Observers are waiting for details of her tax plan to be announced by Vice President Kamala Harris, whom President Joe Biden endorsed as his successor when he dropped out of the presidential race, but the White House has called for a rollback of the Trump tax cuts, restoring the top marginal income tax rate to the 39.6% rate that existed before the Tax Cuts and Jobs Act of 2017. It is also pushing for an increase in the corporate tax rate to 28%.
Wall Street will not be enthralled by the announcement.
A tougher regulatory regime is also expected to be rolled out, something that US companies have complained about throughout the Biden administration.
Additionally, Biden proposed raising the top marginal tax rate on long-term capital gains and qualified dividends to 44.6% — currently, the rate is 20% — plus a 3.8% net investment income tax for high-income earners, and requiring billionaires to pay at least 25% of their income in taxes.
Some would argue that this series of tax hikes in a weakening economy could lead to a recession, even if the Federal Reserve continues to ease interest rates.
Given that the first year of a presidential election cycle is historically the toughest for the stock market, our guide might suggest taking profits early. This will be true regardless of who is next in the White House, and could be a hedge against unexpected events, such as major policy changes.
The past two years have been fairly profitable for stock market investors, despite the complete lack of predictability about what would happen as we emerged from pandemic-related stay-at-home orders.
But now is the time to plan for the near future, and it’s a good time to set aside a rainy day fund in case the costs of a new administration turn out to be higher than expected.
In fact, 2025 may become known as “The Year of Living with Anxiety,” a potential new reality that will be addressed in the sequel to our guide, “What to Expect in Your First Year.”
— CNBC contributor Ron Insana iFi.AI, an artificial intelligence fintech company.
