Economic PerspectivePost-election round-up: Three questions to consider now
What changing estate rules, taxes, and tariffs mean for you
Markets certainly like decisive elections, as we saw when the Dow Jones Industrial Average, S&P, and Nasdaq Composite hit record highs on November 6. As the dust settles, stock prices have already begun reverting to the mean, showing that the market had mostly priced in the election’s impact. this short-term movement, we at Steel Tower Investments are following the broader factors of the economy that may change under the incoming Trump administration. Of course, investors should stay true to their overall investment goals and diversified portfolios. Yet we are closely watching these three questions for their impact on the financial plans of our high-net-worth and family-office clients.
Will federal estate tax exemptions live on?
The Tax Cuts and Jobs Act of 2017 (TCJA), which raised the amount of assets exempted from the federal estate tax, will expire in 2025. In 2024, only assets above $13.61 million for single filers and $27.22 million for couples filing jointly will be subject to the federal estate tax, and those numbers are set to rise to $13.99 million and $27.98 for 2025. Although Trump has said he supports renewing the TCJA, much remains unknown, including how Congress would fund the renewal, estimated to cost more than $4 trillion, under the watchful eyes of House deficit hawks.
In the face of this uncertainty, investors with estates over or near the exemption limit may want to plan for the best while preparing for the worst. Start by talking to your financial advisor. A top-tier advisor will help you partner with an attorney who particularly specializes in estate planning for high-net-worth clients. In our experience, truly qualified estate attorneys with the skills to effectively manage the needs of large estates are a rare breed. They also tend to be in high demand: Don’t wait to contact a specialized estate attorney to update your estate plan until the TCJA’s renewal starts to look uncertain, or it may be too late. Instead, meet to review your options in early 2025 or sooner. Together, you can draw up contingency estate documents to hold in reserve, then discuss whether to execute them as the TCJA’s potential expiration draws near.
How will tax policy and tariffs affect the economy?
When President Trump re-enters office in January, his party will be empowered with a majority in both houses of Congress. History shows this trifecta of leadership may be short-lived: Presidents George W. Bush, Barack Obama, Joseph R. Biden, and Trump in 2016 each had two years of majority control to pursue their party’s agenda until the next midterm elections, when voters opted for split-party control. After all, having full control means there’s only one party to take the credit—and also bear the blame if voters are dissatisfied.
Until then, Trump has proposed enacting $3.3 trillion in tax cuts beyond the TCJA and an aggressive approach to implementing tariffs. Trump has suggested he would impose a tariff of 10% or 20% on every import to the U.S., 60% on all imports from China, and possibly a 100% or 200% tariff on cars or other products manufactured in Mexico by U.S. companies. Tariffs can be an effective, and ethical, tool in the global economy. For instance, tariffs may be a logical response to child labor, environmental abuses, etc. However, tariffs also may have an inflationary effect, and their impact may hurt some sectors of the U.S. economy as much as it helps others. They’re also complex to implement and may take several years to go into effect.
The question will be how these tax and tariff developments affect the business climate and U.S. tax revenue base. Ultimately, the answer will impact the stock market—and investors’ portfolios.
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Will the labor market stay strong, steering us away from a recession?
The U.S. labor market has seen dramatic conditions over the past several years. It experienced extreme tightening during COVID, followed by the Great Resignation, and now has achieved a fairly balanced state, with the latest data showing slowing wage growth and a flattening unemployment curve, now at 4.1% total unemployment. The U.S. economy is like a big ship, slow to turn. But the Federal Reserve may yet steer safely through the icebergs, managing to calm inflation without harming employment and the performance of the overall economy.
All eyes will be watching whether this healthy level of employment continues. Consumer spending is the largest contributor to GDP, so its ongoing growth depends on whether Americans keep working and shopping. Businesses and workers are still negotiating the bounds of the return-to-office movement, which may impact the labor market and certainly will have consequences for commercial real estate, technology, and other sectors as it unfolds.
As for the Trump administration, we can expect it to favor deregulation, support business owners over unions, and generally have an ear attuned the business community’s concerns. Trump’s bullish, pro-business positions may have a powerful effect on economic sentiment. And we know that decisions by business owners and corporations to hire or fire employees often hinge on the intangible “mood” of the economy.
Three moves to make now
Amid all these evolving factors, what can investors do to protect their wealth? If you’re working with a qualified financial professional, you already should have a balanced portfolio and a plan to safeguard your wealth in a range of situations. But you also can take steps today to update your plan based on what we know about the incoming administration.
- Revisit your estate plan: We know for certain that the Tax Cuts and Jobs Act of 2017 will expire in 2025. It may also get renewed or altered, or it may merely lapse. Plan ahead for any outcome and avoid costly mistakes by ensuring your financial advisory team includes an estate attorney experienced with large estates in your overall wealth management process.
- Find opportunities in the market: It’s tempting to hold onto cash during times of change. But a knowledgeable financial advisor can help you capture new advantages in equities, including opportunities for growth and added diversification.
- Shore up your business’s ability to withstand risk: Whether from labor, tariffs, supply chain, or other developments, your business should be equipped to adapt in the face of change. With a cross-disciplinary advisory team, you can strategize to better manage risk, cash flow, and taxes to help your business thrive in all conditions.
To learn more about how a cross-disciplinary approach to investment, tax, cash management, and estate planning may benefit you, contact us.
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