Sgt. Joe Friday here, with the facts, ma’am, just the facts. Like it or not, President-Elect Donald Trump and the Republican-controlled Congress take office in January, and they will have a big impact on your clients' portfolios and financial planning strategies.
First up, taxes: The cuts that are due to expire at the end of 2025 will likely be renewed — and they're substantial. These include the increased standard deduction (in 2024, it's $14,600 for single filers and $29,200 for married couples filing jointly), the $2,000-per-child tax credit (with up to $1,700 refundable), and a top tax bracket of 37% (which will rise to 39.6% if the cuts expire).
In fact, Trump has promised to reduce the top marginal rate to 33%. He’s also expected to ask Congress to increase or eliminate the cap on state and local tax deductions on federal returns, known as the SALT cap. That’s a big deal for clients in high-tax states like New York, New Jersey and California who pay lots in property taxes.
Next, student loans: The GOP has never liked the Democrats’ efforts to waive student debts (the Supreme Court struck down President Joe Biden's effort to forgive student loans after six Republican-led states' attorneys general sued), so your clients should expect that they’ll have to repay their (or their kids’) loans after all.
On tariffs, Trump says he will levy taxes on many countries’ exports — including 25% on products from Canada and Mexico and 60% or more on those from China — and more announcements are expected. Many economists say that nations hit with tariffs will respond in kind (Canada has already said it would), and that this would result in higher prices (read: inflation) for U.S. consumers.
The result: slower growth for our economy, perhaps to the point of pushing us into a recession. Advisors need to pay close attention to how this could affect both stock prices and interest rates.
Trump also says he wants to replace the Affordable Care Act, and make major changes to Medicare and Medicaid, but he’s offered no details yet. You’ll need to stay on top of his proposals, especially for your retired clients, and be ready with new recommendations. Clearly, resting on old advice won’t do.
Speaking of retirees, Trump reiterated on NBC last week that he would not cut Social Security benefits, and during the campaign he even said he would even make them tax-free.
If implemented, the resulting reduction in tax revenue would cause the Social Security Trust Fund to be depleted even sooner than its current 2033 projection. When the fund is gone, benefits for all retirees will fall 23%.
Will Trump soften his stance? Unlikely, since he won’t have to deal with the problem he’ll be making worse; instead, it’ll be a headache for his successors.
The takeaway for you: Make sure your clients are prepared for sharply lower benefits, significantly higher payroll taxes, or both — perhaps as soon as the end of the decade.
