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What Direct Influence Do Presidents Have Over the Economy?
How Will the Presidential Candidates’ Tax Proposals Affect Me?
How Would a Possible Sunset of the 2017 Tax Act Change My 2026 Taxes?
Should I Take Immediate Action Based on the Election Results?
What Are the Best Financial Strategies Regardless of Who Wins the Election?
What Is the Best Corporate Tax Strategy To Use in the Lead-Up to an Election?
Aurelius Family Office recently held a webinar to explore how past election outcomes have influenced rates of return, discuss potential tax policy differences between a Trump and Harris administration, and share year-end tax planning strategies to consider. We committed to keeping the politics and non-financial planning topics out and focusing on candidates’ current proposals and our strategies.
As we’re wont to do in our blog, we’ll frame this recap of the webinar in terms of the key questions we addressed.
What Direct Influence Do Presidents Have Over the Economy?
“Far less than you might think,” noted podcast participant, Morgan Rogers, Aurelius’ director of investment operations. As Figure 1 shows, the annualized returns during US presidential terms are similar whether the Democrats or Republicans win the White House, with some years better than others. Fluctuations—especially those extreme ones seen in the Hoover, Nixon, and George W. Bush terms—owed to economic crisis and other broad social and economic influences.
“Far less than you might think,” noted podcast participant, Morgan Rogers, Aurelius’ director of investment operations. As Figure 1 shows, the annualized returns during US presidential terms are similar whether the Democrats or Republicans win the White House, with some years better than others. Fluctuations—especially those extreme ones seen in the Hoover, Nixon, and George W. Bush terms—owed to economic crisis and other broad social and economic influences.
Look at Figure 2 and you’ll see that during the past 64 years, the S&P 500 performance has trended steadily upward, with the same dips during the Nixon and Bush II terms, yet returning to their winning ways within five years. What has mattered and will continue to matter is where we are in the market cycle and not what political party is in office. Don’t believe this? Consider Figure 3, which compares how much your $100,000 investment would have fared over 10 years if you’d only invested only when your party was elected versus investing during the whole period.
The 70-year comparison is even more of an argument for political agnosticism during election years! A thousand dollars invested in 1953 and kept invested regardless of party control of the White House would have grown to $1.58 million by 2023. Party-specific investment would have yielded a tiny fraction of this amount.
“The bottom line?” concluded Morgan. “It’s people and businesses and market cycles that determine financial performance, not politicians and their parties.”
How Will the Presidential Candidates’ Tax Proposals Affect Me?
The most important thing to understand in the lead-up to the election is that the candidates’ proposals are just that, proposals. They are in the talking and promising and crowd-pleasing phase of their campaign for office. They are throwing ideas in the oven to see if they bake; they are running proposals up the flagpole to see who salutes.
That said, 2025 marks the year when the Tax Cuts and Jobs Act (TCJA) signed in late 2017 is set to expire, so it’s worth exploring the differences between Kamala Harris’ and Donald Trump’s tax talk. Signed during Trump’s first term as president, the TCJA included:
- Individual tax rates dropped by 3% to 4%
- The corporate tax rate was cut from 35% to 21%
- The standard deduction increased and the personal exemption deduction was removed
- Some deductions were capped or eliminated (like SALT and misc. 2% items)
- Tax credits were expanded
- The estate tax exemption jumped from $5.6M to $13.61M in 2024
Many of these changes are set to expire at the end of 2025. So, what are the candidates saying about the brave new world of 2026? “Trump vows to pick up where he left off,” pointed out Greg Barishian, our tax planning director, in the podcast. This includes slashing corporate taxes, renewing individual tax cuts to 2017 levels, and even eliminating taxes on Social Security benefits and tips, and likely instituting a new round of tariffs of up to 20% on imports generally, with 60% on imports from China.
On the Harris side, Gordon Nelson, Aurelius’ director of financial planning noted, “Harris’ proposals generally carry forward the Biden/Democratic platform. These are aimed at higher taxes on businesses and high earners, which she identifies as those earning more than $400,000 a year.” Policy goals would raise top tax rates on both corporate and individual income to “among the highest in the developed world,” he added. Specifically, the Harris camp has proposed to:
- Increase the top individual tax rate to at least 39.6% or even as high as 44.6%
- Increase corporate tax rate
- Tax long-term capital gains at 28%
- Tax unrealized capital gains at death – no “step-up” in basis at death
- Tighten rules related to estate tax
- Limit 1031 exchanges to $500,000 of gains deferred
- New small businesses tax break of up to $50,000
- Create a $25,000 tax credit for first-time homebuyers
- Eliminate certain taxes on tips
- Increase child tax credit, including giving new parents a $6,000 credit
- Tax on unrealized gains for extreme high net-worth individuals
Significantly, neither candidate has meaningfully tackled the deficit or the threat of future government shutdowns. In addition, candidates typically find it difficult to make good on campaign promises because both chambers of Congress are required to pass legislation.
How Would a Possible Sunset of the 2017 Tax Act Change My 2026 Taxes?
While little will change in 2025 regardless of who gets into office, our prediction for change in 2026 based on the sunsetting of the 2017 Act is as follows:
- Estate Taxes: The $13.6M estate and gift tax exclusion is expected to drop to about $7M in 2026. Consider family gifting up to the current limit before any changes occur. There’s also a proposal to cap individual annual gifts at $10,000, though it’s unlikely to gain traction.
- Income Tax Preparation: Tax prep will become more complex, again, with potential reintroduction of lower standard deductions, personal exemptions, and full deductions for state and local taxes, which could lead to higher taxes for most people. High-tax states and those with high mortgage interest might benefit from itemizing deductions.
- Future Tax Changes: Republicans may push to extend current tax cuts, while some Democrats might support keeping them for those earning under $400,000.
Significant tax cuts or credits may face opposition from Congress unless linked to spending cuts or higher tariffs. Given the challenge of cutting social welfare spending, Social Security, and Medicare, this may be difficult.
Speaking of entitlements, the one myth you should NOT expect to materialize regardless of who wins in November is that Social Security benefits will end! It’s not going to happen. “Social Security benefits are not going to end no matter who is in the White House or who controls Congress,” said Aurelius managing principle Mark Witaschek during the webinar. “Social Security is considered untouchable in politics. The last significant change took place in 1983; this is the reform that most of you are familiar with that resulted in the gradual increase in full retirement age to age 67 for most people, and also the changes that resulted in the fairly substantial increases in Social Security benefits between age 62 and age 70. As many of our clients know, we encourage clients to wait until age 70 to begin collecting Social Security.
And speaking of myths, another one is that presidents can unilaterally change tax laws or spending. The president can propose a budget, including taxation, but Congress must approve it. The reverse of this myth—that presidents have no hope of enacting changes—is also untrue. “Social Security, the Affordable Care Act, and the 2017 Tax Cuts and Jobs Act all started as unlikely ideas but became law after major eventsand compromise,” Mark reminded listeners. “The key, of course, is compromise.”
Should I Take Immediate Action Based on the Election Results?
No, no, a thousand times no! Checks and balances helpkeep power evenly spread across branches of government. Political swings usually level out over time, with big changes often being reversed. Quick and rash decisions, like cashing out, rarely pay off. (Review figures 1-3.) While a second Trump term would focus on solidifying tax policies from his first term, a Harris presidency would likely not support TCJA and would seek its scheduled sunsetting.
Both candidates would support eliminating taxes on tips, and Trump has even thrown the idea of eliminating federal taxes on Social Security benefits. Trump supports expanding opportunity zones, and Harris advocates small business startup credits.
So, what should you expect as a result of the election? “It’s natural for investors and the media to look for a connection between who wins the White House and which way stocks will go,” offered Mark. “But shareholders are investing in companies and not investing in a political party. So companies that focus on serving their customers and growing their businesses, regardless of who’s in the White House, are likely to be the ones that are winners over the long term. The tens of millions of working Americans and retired Americans make the decisions that affect the economy and markets.”
What Are the Best Financial Strategies Regardless of Who Wins the Election?
We’re glad you asked this question. It’s the right one to ask because it reflects how the Aurelius team actually manages our clients’ portfolios. In general, Aurelius makes highly individualized wealth management recommendations to clients based on their assets, capital gains, types of accounts that they have, and goals. Still, here are some suggestions beginning with managing capital gains:
- Delay Gains: Use a 1031 Exchange to defer capital gains on investment real estate by rolling it into a similar property.
- Delay Gains with a Fast-Track Option: If a 1031 Exchange fails (i.e., you don’t reinvest within 180 days), the gains get taxed immediately.
- Offset Gains: Harvest other losses in the same year to offset gains, but watch out for the “wash sale rule” and aim to capture a $3K loss against ordinary income.
- Offset Gains and Give Back: Use charitable donations to reduce your tax burden while supporting a good cause.
- Spread Gains and Support Charities: Consider a “Substantial Sale CRT” (Charitable Remainder Trust) to spread gains and benefit charities.
As for managing your tax bracket, we don’t prepare taxes but Aurelius offers a suite of tax planning and projection services. Consider doing the following to reduce income:
- Contribute to 401(k), 403(b), or IRA accounts
- Use Health Savings Accounts (HSAs) & Flexible Savings Accounts (FSAs) where possible
- Optimize asset location
- Make charitable donations or use Charitable Remainder Trusts (CRTs) and Donor-Advised Funds (DAFs)
- Delay income when possible
- Harvest investment losses
To increase income, consider:
- Taking distributions from IRAs
- Converting funds to Roth IRAs
- Postponing deductions
- Accelerating income into the current year
- Harvesting investment gains
What Is the Best Corporate Tax Strategy To Use in the Lead-Up to an Election?
For corporate tax strategies, Aurelius believes in thinking creatively and using flexible strategies that you can adjust as the picture clears rather than trying to “bet” on a winner or a given proposal. The key is to find strategies, such as diversification and Roth conversions, that work regardless of the election outcome.
Choosing the right business entity is crucial. And your choice depends on different tax and other factors associated with sole proprietorship, LLC, S-Corp or C-Corp. Check in with your financial advisor, tax advisor, and attorney.
There Are No Extensions to December 31!
Pretty soon now we won’t have political e-mails or ads clogging our brain receptors, and the pundits will run out of material and steam. We can put that brain space to good use! In the waning months of 2024, the Aurelius team will work with you to complete the remaining year-end tax planning issues for those clients with financial structures that require it. As we completed client reviews throughout the year, we worked to recognize tax planning issues not dependent on market/distribution or income changes.
If you have questions or concerns about anything tax-related, please let us know. We will continue to let you know of tax planning and other action items as we post communications through year-end. We’re looking forward to completing year-end planning by mid-December so you, and our team, can fully enjoy the holiday season with family and friends!
Disclosure
Aurelius Family Office, LLC (AFO) is registered as an investment adviser with the SEC and Noticed Filed with the state(s) where it transacts business, unless excluded or exempted from filing requirements. This communication is for information purposes only, and it is not intended to provide specific legal, tax, or other professional advice. Investments involve risk and unless otherwise stated, are not guaranteed. Although information has been obtained from sources deemed to be reliable, we make no guarantee as to the accuracy or completeness of this data. AFO shall not be liable for any errors or omissions, or for any actions taken in reliance thereon. Be sure to first consult with a qualified professional adviser before implementing any strategy discussed herein. Past performance is not indicative of future results.
