The budgetary impact of tax policies: What to expect post-election
As the 2024 election looms closer, the potential budget impact of tax policies has become a hot topic of discussion. The outcome of this pivotal election will likely have a significant influence on tax legislation, potentially reshaping the economic landscape for years to come. Private equity spending, corporate tax rates and individual tax burdens are all poised to experience shifts based on the political ideology that prevails at the polls.
With major changes to tax policy on the horizon, the budgetary consequences of the election are set to impact both personal income taxes and business activity alike.
The fate of the 2017 Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (TCJA) of 2017 brought significant changes to the U.S. tax code, but many of its provisions are set to expire at the end of 2025. This expiration has a substantial impact on tax policy and budget considerations, especially in light of the upcoming 2024 election.
Several major TCJA provisions are scheduled to sunset, including changes to individual income tax rates, the standard deduction, child tax credit, the 20% qualified business income deduction and the estate tax exemption amount. These changes could have ripple effects on consumer and business spending, generational wealth transfer, investment decisions and overall economic growth in the years following the 2024 election.
Proposals for extension or modification
As the expiration date approaches, policymakers are considering various options for extending or modifying the TCJA provisions. Some proposals aim to make certain aspects of the law permanent, while others suggest targeted extensions or modifications. The debate surrounding these proposals has an influence on business spending, as businesses and investors anticipate potential changes to the tax landscape.
The economic impact of TCJA expiration
The expiration of TCJA provisions has a significant impact on the budget and economy. The Congressional Budget Office (CBO) anticipates a substantial increase in tax revenue in the years immediately following a TCJA expiration, but at a major economic cost, as increased individual tax burdens may impact both individual spending and saving rates. l
Extending the tax cuts, on the other hand, puts increased stress on the federal deficit, with the CBO estimating up to $4.6 trillion in additional debt over fiscal years 2025-2034. This could have a significant impact on government spending, sparking debate about the long-term fiscal implications of the policy and the need for potential offsets.
These costs do not consider any tax proposals that will be likely be introduced in 2025 by the newly elected president. A discussion of the tax policy proposals of each presidential candidate will be the topic of an upcoming article.
Estate and gift tax modifications
The lifetime federal estate and gift tax exemption is set to undergo significant changes in the coming years. As of 2024, individuals can transfer up to $13.61 million (double for married couples) of wealth to others without incurring federal gift or estate tax. However, this historically high exemption is scheduled to sunset at the end of 2025, potentially reverting to approximately $7 million (double for married couples), adjusted for inflation. This reduction could have a substantial impact on estate planning strategies.
The lifetime exemption creates a sense of urgency for high-net-worth individuals to consider strategic wealth transfer planning. Gifting strategies, such as utilizing the annual gift tax exclusion ($18,000 per recipient in 2024) and making direct payments for educational or medical expenses, may become increasingly important.
Overall financial outlook
The upcoming 2024 election has the potential to cause major shifts in tax policy, with far-reaching effects on the budget and overall economic growth. From the fate of the expiring TCJA provisions to proposed changes in tax policies, the post-election landscape is poised for significant shifts. These changes have a substantial impact on various sectors, influencing investment behavior, wealth transfer strategies and corporate decision-making.
As policymakers grapple with these complex issues, they’ll need to balance the goals of economic growth, tax fairness and revenue generation. The decisions made in the wake of the 2024 election will play a key role in shaping the country’s financial future. Whether it’s tweaking existing policies or introducing new ones, the next administration will face the challenge of crafting a tax system that’s both fair and conducive to economic prosperity. In the end, the choices made will have a lasting impact on the nation’s fiscal health and economic competitiveness.
How Wipfli can help
Markets crave stability, and the current tax landscape is anything but. If you’re struggling to make sense of an ambiguous economic future, Wipfli can help. Our dedicated tax advisors understand the implications of the changing policymaking environment, and we’re ready to advise you on your best steps for success. Contact us today and look forward to a more predictable future.
