As the election approaches, investors are facing a whirlwind of tax policy proposals from both Democratic and Republican candidates. The impending changes can evoke strong emotions that may lead to impulsive financial decisions, according to experts. Vice President Kamala Harris, the Democratic nominee, has outlined plans for tax cuts for the middle class while suggesting an increase in taxes for the wealthy and corporations. On the other hand, former President Donald Trump, the Republican nominee, aims to extend tax breaks initiated during his first term and eliminate taxes on Social Security benefits. Additionally, Trump supports imposing higher tariffs on imported goods from other countries as part of his economic strategy.
Despite the clarity of these proposals, it is crucial for investors to understand that there is a significant gap between a candidate’s tax idea and actual legislation. Implementation of tax law changes necessitates approval from Congress, and uncertainties loom over the future control of the House and Senate. Rick Kahler, a Certified Financial Planner and financial therapist, acknowledges that numerous elements included in presidential budgets may not come to fruition. A key complicating factor is the trillions of dollars in tax breaks instituted by Trump in 2017. Several individual provisions are set to expire after 2025, including adjustments to federal income tax brackets, standard deductions, child tax credits, and gift and estate tax exemptions.
As families and advisors grapple with planning for the future, the uncertainty surrounding the extension of specific provisions complicates long-term financial decisions. Louis Barajas, a Certified Financial Planner and member of CNBC’s Financial Advisor Council, emphasizes the significance of refraining from making premature changes based on proposed tax laws. Rushing into decisions can have adverse consequences if the legislation does not come into effect or alterations are made during the legislative process. Barajas suggests that it is prudent to wait until the actual law is passed before implementing any changes in financial strategies.
It is imperative to recognize that emotions often dictate financial decisions. When faced with the prospect of tax increases, investors may succumb to a “scarcity mindset” that prompts fear of diminished financial resources. However, Rick Kahler emphasizes the importance of rational decision-making and avoiding impulsive actions driven by intense emotions. Regardless of one’s financial situation, it is crucial not to allow fear or anxiety to dictate financial choices. Taking a step back, breathing, and evaluating the situation calmly can help investors make sound financial decisions aligned with their long-term objectives.