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How Trump's Win Will Change Tax Planning
Tax cuts extended, but what about SALT?
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Happy Sunday everyone, and welcome to Benzinga’s financial advisor newsletter.
Today we’re discussing what Trump’s return to the White House, with a Republican Senate and possibly House of Representatives too, means for tax planning.
So, let’s get into the Industry Chatter!
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INDUSTRY CHATTER
The 2024 election victory of former President Donald Trump, coupled with Republicans retaking the Senate and possibly retaining the House of Representatives, has naturally put the spotlight on what this means for tax policy.
Tax experts agree a likely result is the extension of key components of the 2017 Tax Cuts and Jobs Act (TCJA).
Republican Congress Will Extend Trump’s Tax Cuts
Ben Henry-Moreland, a senior financial planning expert at Kitces.com, anticipates a "Republican trifecta" in Washington, making the extension of the TCJA provisions highly probable. This includes the historically high estate tax exemption, higher standard deduction, lower income tax brackets, and the restructured alternative minimum tax (AMT) framework.
While there is a possibility that Republicans could seek to repeal the estate tax entirely, Henry-Moreland notes that the current high exemption levels mean the tax only applies to the wealthiest Americans, making it a lower priority compared to other policy changes.
One caveat is that state-level estate and inheritance taxes will still need to be considered, as many states maintain lower exemptions than the federal government. Trust planning to move assets out of estates and avoid state-level taxes is likely to continue.
The current AMT framework, which has significantly reduced the number of households subject to the tax, is also expected to be extended, preventing a return to the pre-2018 rules that would have affected more taxpayers.
SALT Deduction Cap Will Probably Stay
Similarly, the higher standard deduction and limitations on state and local tax (SALT) deductions are likely to remain in place, despite Trump's comments to the contrary during his campaign. While the SALT cap has been criticized, it has not had as severe an impact as anticipated, as many high-income taxpayers were already subject to the AMT before the TCJA changes.
Leslie Gillin Bohner, chief fiduciary officer at Fiduciary Trust International, echoes the view that most TCJA provisions will likely be extended, advising clients to adopt a "wait-and-see approach" and plan on their own timeline to utilize remaining exemption amounts.
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MARKET RECAP
Donald Trump‘s election as the 47th president of the United States sent Wall Street into a frenzy, driving major stock indexes to once again break record highs.
Investors are betting that Trump’s potential policies — such as lower corporate and individual taxes, coupled with deregulation in the financial sector — will spur growth for corporate America. They may be underestimating the impact of higher deficits and tariffs on inflation.
Among mega-cap companies, Tesla Inc. (TSLA) stood out, soaring about 30% this week, which significantly boosted Elon Musk's wealth in the wake of Trump's victory.
Small- and mid-sized stocks outperformed large caps, driven by expectations that trade restrictions could favor domestic businesses over global corporations. The Russell 2000 index, as tracked by the iShares Russell 2000 ETF (IWM), recorded its strongest week since April 2020, while regional banks – tracked by the SPDR S&P Regional Banking ETF (KRE) – rallied to levels last seen before the March 2023 crisis.
Cryptocurrencies were another major winner post-election, with Bitcoin (BTC/USD) hitting new all-time highs as traders anticipate a favorable regulatory landscape for digital assets in a second Trump term.
On Thursday, the Federal Reserve cut interest rates by 25 basis points to a target range of 4.5%-4.75%, as anticipated. This move further bolstered investor risk appetite, propelling the combined market valuation of the Magnificent Seven tech giants past the $17 trillion mark, setting a new record.
Powell Vs. Trump
Federal Reserve Chair Jerome Powell downplayed Trump's threat of his removal, though economists anticipate the new president may not extend Powell's term beyond its 2026 expiration. Powell adopted a dovish tone, minimizing concerns over rising Treasury yields, which markets attribute to renewed inflation expectations.
Trump’s Tech Threat
A Trump victory could stall growth in the tech and EV sectors and slow the pace of AI advancements. Analysts warn that policies under Trump might limit innovation, affecting industries that rely on technology and sustainability-focused investments.
Performance By Sector Under Trump
Analyzing S&P 500 sector performance during Trump's first term reveals technology and consumer discretionary sectors outperformed, while energy lagged. In the first three months following Trump’s 2016 election, financials stocks outperformed.
Consumer Sentiment Rises
U.S. consumer morale hit a six-month high, surpassing forecasts, and inflation expectations dropped to a four-year low, according to a University of Michigan survey released Friday.
THE WEEK AHEAD
Economic Data
Monday: Veterans Day
Tuesday: OPEC monthly oil report and US consumer inflation expectations
Wednesday: US inflation numbers
Thursday: US crude oil inventories
Friday: US retail sales
Earnings
Click here for the full calendar of economic data and earnings reports.
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