SCM's Deep Dive: How Could Tomorrow’s Election Affect Your Money?

The presidential election is tomorrow and the race between former President Donald Trump and Vice President Kamala Harris is very close.  You might wonder how the election results could impact your savings and investments.

It's normal to have strong feelings about politics, especially these days. But it's important not to let those feelings change your long-term money plans.

As voters and taxpayers, we know that election results could affect our daily lives. But when it comes to your investments, try not to let your political views guide your decisions. History shows that the economy usually affects elections more than elections affect the economy. So, it's best to vote at the polling place, not with your savings.

Taxes might change, especially for inheritance.

One of the trickiest areas to predict after the election is taxes. The Tax Cuts and Jobs Act (TCJA) will end in 2025, which means individual and business taxes might change. This is sometimes called a "tax cliff." The candidates have different ideas about business taxes, individual tax rates, taxes on investment gains, and tax credits.

Taxes directly affect households and companies, but their impact on the overall economy and stock market isn't always straightforward. This is because taxes are just one factor influencing growth and returns. There are also many ways to reduce the amount of tax you pay.

Taxes are also quite low compared to the past. This will be true whether the highest tax rate is 37% or 39.6%. With the growing national debt, it's wise to expect taxes to increase, whether after this election or later. Planning for this possibility, ideally with help from a trusted advisor, is becoming more important.

One area where taxes are especially low is inheritance taxes, which apply when someone passes on their assets after death. The TCJA doubled the amount that can be passed on without taxes, and for 2024, that amount is $13.6 million. If nothing changes, this would go back to about $6.8 million per person in 2026.

Even though inheritance taxes only affect a small number of people and don't bring in much money for the government, they've become a big political issue. The future of inheritance taxes will depend a lot on this election, including who wins in Congress. For wealthier families, this could significantly impact their tax and estate planning.

International trade policies may shift based on election results.

The candidates also have different ideas about international trade, especially regarding tariffs. Tariffs are taxes on imported goods. While the trend of bringing manufacturing back to the U.S. will likely continue, how tariffs are used could depend on who wins the election. It's worth noting that President Biden kept many of the tariffs that were put in place by President Trump.

Tariffs used to be a big deal in trade and a major source of money for the U.S. government, but they've played a smaller role in recent decades. Over the past hundred years, organizations and agreements like the World Trade Organization (WTO) and the United States-Mexico-Canada Agreement (USMCA) have helped reduce trade barriers between major partners. Still, tariffs have been used at times to protect U.S. industries and intellectual property in areas like steel, electronics, computer chips, and farming.

If you're worried about a possible trade war, remember that similar fears in 2018 and 2019 didn't lead to the worst-case scenarios some people predicted. The economy stayed strong during this time, with very low unemployment and no inflation, even though it was late in the business cycle. Eventually, ongoing talks between key trading partners helped ease some fears. As the chart shows, the U.S. has continued to import more than it exports (called a trade deficit) with many countries, regardless of trade policies.

The economy has grown under both major political parties

When you look at history, you'll see that the economy has grown under both Democrats and Republicans, and the stock market has had good periods no matter who was president. This might seem surprising, but it's because politics often doesn't have a big impact on the economy and markets. What matters more are things like the overall economic cycle and big trends such as the growth of artificial intelligence, advances in technology, falling inflation, and a strong job market.

Even though this election seems very important, changes in policy tend to happen slowly because of the checks and balances in our political system. What candidates promise during campaigns can be very different from what they can actually do once in office.

When it comes to taxes, neither candidate is suggesting we go back to the levels we had before President Reagan, when the highest tax rates were as high as 94%. For trade, tariffs might increase but they probably won't reach the levels we saw almost a hundred years ago during the Great Depression. It's important to keep these facts in mind when planning for the next four years.

The bottom line? While the election is important for many reasons, its long-term effect on the stock market and economy is often overestimated. The economy has grown under both major political parties, and it's crucial for investors to keep this perspective during election season.

If you want to discuss this further, we offer a complimentary 15-minute call to discuss your concerns and share how we can help.

Stordahl Capital Management, Inc is a Registered Investment Adviser. This commentary is solely for informational purposes and reflects the personal opinions, viewpoints, and analyses of Stordahl Capital Management, Inc. and should not be regarded as a description of advisory services or performance returns of any SCM Clients. The views reflected in the commentary are subject to change at any time without notice. Nothing in this piece constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Advisory services are only offered to clients or prospective clients where Stordahl Capital Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Stordahl Capital Management unless a client service agreement is in place. Stordahl Capital Management, Inc provides links for your convenience to websites produced by other providers or industry-related material. Accessing websites through links directs you away from our website. Stordahl Capital Management is not responsible for errors or omissions in the material on third-party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third-party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites. Please note that trading instructions through email, fax, or voicemail will not be taken. Your identity and timely retrieval of instructions cannot be guaranteed. Stordahl Capital Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

Copyright (c) 2024 Clearnomics, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.