Election Year – What to Expect

October has always been one of my favorite months in the calendar year. The air begins to feel more crisp, football season is in full swing, and things can (sometimes) begin to slow down as you approach the holiday season and the year’s end. However, every four years October takes on added significance as the United States Presidential Election approaches. With an upcoming election, there is always a concern of what is to unfold and how to prepare for it.

Tax Policy Implications

Though there will be no incumbent this year, we can defer to ideologies of parties and proposals of tax policy for the current presidential candidates/parties. Some of these policies relate to increasing or decreasing rates for individuals, changes in tax rates of corporations, increases of certain credits and deductions, and many other areas involving tax. The Democrats have proposed raising the top marginal tax rate from 37% to 39.6%, while the Republicans have proposed keeping rates as they are and have been since the Tax Cuts and Jobs Act was enacted in 2018. Currently, the corporate tax rate sits at 21%. The Republican party is proposing lowering this rate to 20%, or even 15% for certain companies. The Democrats are proposing an increase in the corporate tax rate to 28%.  The Democratic party is proposing an increase in the child tax credit. The Republicans are proposing an increase in the deductibility of state and local taxes for those that itemize deductions. These are only a handful of proposed items between the two parties. It is important to familiarize yourself with potential changes in tax policy and how it may affect you and your financial picture. The Tax Foundation website has a good analogy of the different platforms each candidate is proposing in its page “Tracking 2024 Presidential Tax Plans”.

Market Performance

Historical trends involving political headlines have shown markets to have short-lived rallies and dips as investors handle anticipation of what is to come. However, elections have shown little long-term effect on market performance, and do not favor one party or the other. The Standard and Poor’s 500, commonly known as the S&P 500, measures the performance of 500 of the largest companies on U.S. stock exchanges. Since 1928 there have been 24 election years. Per Bloomberg’s annual percentage change of the S&P 500 index, in those election years the index has shown an average price return of 7.49%, and a return of 7.63% in the year following the election.

What To Do

With all the political media we are accustomed to seeing, it can be easy to get excited or anxious depending on your preferences, as to what will happen next. One thing that will never change is that having a plan when it comes to your financial life is a must. If you believe that you or your business may be affected by any potential change in tax policy, do not be afraid to ask questions or contact your Certified Public Accountant and/or CERTIFIED FINANCIAL PLANNER® for professional advice or planning. When it comes to your investments, creating a plan with sights on the long-term can most often weather any situation.

 

Published in the Victoria Advocate

Hayden Schilling, CPA is a staff accountant for Keller & Associates CPAs, PLLC.