Personal Finance
Here’s how the election could affect your taxes
Vice President Kamala Harris, left, and former President Donald Trump
Reuters
As former U.S. president Donald Trump and Vice President Kamala Harris unveil their economic agendas, both presidential candidates have called for tax changes that could affect millions of Americans.
Taxes will be a key issue for the next president. Without action from Congress, trillions in tax breaks enacted by Trump via the Tax Cuts and Jobs Act, or TCJA, will expire after 2025. More than 60% of taxpayers could see higher taxes in 2026 without extensions, according to the Tax Foundation.
Expiring provisions include lower federal income tax brackets, a higher standard deduction, a bigger child tax credit and more generous estate and gift tax exemptions, among others.
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However, “there’s a gulf between the political rhetoric around the 2017 tax law and the policy reality that both parties are going to face next year,” said Andrew Lautz, associate director for the Bipartisan Policy Center’s economic policy program.
While Democrats have criticized elements of the TCJA, both parties will likely agree to extend trillions in tax cuts, he said. But negotiations could be challenging amid concerns about the federal budget deficit.
Extending TCJA provisions and subsidized premiums for marketplace health insurance could increase federal deficits by nearly $5 trillion over 10 years, according to the Bipartisan Policy Center.
Here’s a breakdown of where each candidate stands on tax policy.
Plans to extend Trump’s tax cuts
Trump aims to preserve the individual and business tax cuts enacted via TCJA, the campaign said in a press release on Monday.
He addressed his tax agenda briefly during an event in York, Pennsylvania on Monday, which countered the Democratic National Convention. During that speech, he promised “big tax cuts for families and small businesses.”
Harris hasn’t directly addressed TCJA extensions during her 2024 campaign. But President Joe Biden‘s top economic advisor Lael Brainard in May voiced support for partial extensions.
“Achieving a fairer tax system also means we can’t extend expiring Trump tax cuts for those with incomes above $400,000,” she said.
The Trump and Harris campaigns did not respond to CNBC’s request for comment.
Proposed tax increases
Both candidates have vowed to address the budget deficit and have proposed measures to raise revenue. But tax law changes must be approved by Congress, which could be challenging, depending on future House and Senate control.
The Harris campaign on Monday said she would push to increase the corporate tax rate to 28%, up from the 21% permanently enacted via the TCJA. The plan could reduce the deficit by $1 trillion over a decade, according to estimates from the Committee for a Responsible Federal Budget.
Meanwhile, Trump has called for sweeping tariffs, which are taxes levied on imported goods from another country.
Trump’s proposed baseline 10% tariff and 60% levy on Chinese goods could reduce the average after-tax U.S. household income by roughly $1,800 in 2025, according to the Tax Policy Center.
During his event on Monday, Trump pushed back on the assertion that tariffs would cost American consumers. “It’s a tax on a foreign country,” he said.
Tax cuts on tips, Social Security
Both campaigns have also floated eliminating income tax on tip income, pitching the idea at separate events in Nevada, a battleground state and service industry hotbed. Harris shared her plan on Aug. 10, roughly two months after Trump proposed the idea.
Despite some bipartisan support in Congress, the idea has faced criticism from some policy experts who believe the measure could face administrative hurdles and possible abuse.
The big question for us as policy wonks is, what is the underlying policy rationale?
Garrett Watson
Senior policy analyst and modeling manager at the Tax Foundation
“The big question for us as policy wonks is, what is the underlying policy rationale?” said Garrett Watson, senior policy analyst and modeling manager at the Tax Foundation.
Trump has also called for no taxes on Social Security income. Social Security is a key issue for voters this election, according to a CNBC poll. CNBC surveyed 1,001 registered voters July 31-Aug. 4.
Child tax credit expansion
Harris on Friday shared an economic plan, including an expanded child tax credit worth up to $6,000 in total tax relief for families with newborn children, among other priorities.
Her plan came less than one week after Sen. JD Vance of Ohio, former President Donald Trump‘s GOP running mate, floated a $5,000 child tax credit.
A Trump campaign official told CNBC at the time: “Trump will consider a significant expansion of the child tax credit that applies to American families.”
A trader wears a Trump hat as he works on the floor of the New York Stock Exchange during the opening bell on Nov. 6, 2024.
Timothy A. Clary | Afp | Getty Images
On Nov. 5, the presidential election handed a decisive victory for President-elect Donald Trump. In the days that followed, the markets soared.
A “Trump trade” led to new index highs for the S&P 500 and Dow Jones Industrial Average, lifted with the help of certain sectors expected to do well under the president-elect’s second term.
As of Monday, the postelection market fervor had started to subside to preelection levels.
Yet, some experts say they are seeing a renewal of so-called animal spirits.
“Animal spirits” is a term first coined by economist John Maynard Keynes and refers to the tendency for human emotion to drive investment gains and losses.
Some experts say animal spirits are a sign of consumer confidence. However, the phenomenon can also be trouble for investors if they take on “excessive risk,” said Brad Klontz, a psychologist and certified financial planner.
“It’s essentially why dead investors outperform living investors, because dead investors are not impacted by their animal spirits,” Klontz said.
Research has shown dead investors’ portfolios tend to outperform, since they are left untouched because they are less likely to be influenced by emotional decisions, such as panic selling or buying.
Investors may be excited or fearful
The recent market runup was not prompted by individual investors chasing the market to a meaningful extent, according to Scott Wren, senior global market strategist at Wells Fargo. Individuals, who were split in their election choices, are also divided in their investment outlook, he said.
“Depending on who your candidate was, you may be excited about the future or fearing the future,” Wren said.
Instead, it has been professional traders and money managers — who couldn’t sit on cash when the S&P 500 index was setting new records every two or three days — who have helped drive the markets higher, he said.
There is also big-picture excitement going into 2025, according to Wren, with expectations for lower taxes, less regulation and reasonable levels of inflation. However, the U.S. economy might have a couple of quarters of slower growth in 2025, he said.
“We’re not going to have a recession,” Wren said. “We think that’s very unlikely.”
‘Nobody is immune’ to investing missteps
Ideally, investors ought to sell stocks when they are priced high and buy when they are low.
But research consistently finds the opposite tends to happen.
Humans are wired to take on a herd mentality and follow the crowd, which guides our decision-making on everything from who we vote for to how we invest, according to Klontz.
“The first thing is to just recognize that nobody is immune from this,” Klontz said.
Now is the perfect time for investors to make sure they have an asset allocation that is appropriate to their personal risk tolerance and financial goals, he said.
“It’s harder to do when the market’s crashed,” Klontz said.
Additionally, it is important to keep in mind that financial advisors, like all humans, are also susceptible to biases. When seeking financial advice, investors should ask questions such as “What would you do as my advisor if the market went down 50%?” Klontz said.
Good advisors should have systems in place to keep them from making big mistakes, Klontz said. They may have an investment committee or a predetermined approach for how they will act.
Importantly, investors should also be asking themselves the same question, Klontz said. For example, if the market drops 40%, are you OK with your portfolio dropping from $100,000 to $60,000?
“If the answer is no, then you probably shouldn’t be all in stocks,” Klontz said.
However, if you are young enough, a big market drop could be an important opportunity to dollar cost average — or invest a fixed amount of money on a regular basis — and position your money for larger gains when it recovers.
“Most people have a real tough time doing that, which is why advisors can help,” provided they are familiar with behavioral tendencies, Klontz said.
If you still haven’t booked your holiday travel plans, take note: Prices tend to rise the closer you get to the days you’re looking to travel.
To afford holiday trips, about 50% of respondents are cutting back on other expenses while 49% are picking up discounts and deals, according to the 2024 Holiday Travel Outlook by Hopper, a travel site.
Some last-minute holiday travelers are leaning into so-called “Travel Tuesday” — or the Tuesday after Cyber Monday and Black Friday — which falls on Dec. 3 this year.
Search interest for Travel Tuesday rose more than 500% from 2021 to 2023, according to a recent report by McKinsey and Company.
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There’s a reason why shoppers are searching for the term.
Last year, 83% more deals were offered on Travel Tuesday versus Cyber Monday and 92% more than Black Friday, according to Hopper data.
Yet, there may be some limitations on the deals available, experts say.
“The challenge for a lot of people is, ‘Do I wait?'” said Sally French, a travel expert at NerdWallet.
For travelers who are set on specific days and places to visit, the answer might be “no.”
“While airlines and online travel agencies are going to offer flight deals on Travel Tuesday, there is no reason to wait,” said Phil Dengler, co-founder of The Vacationer, a travel platform.
How much you benefit from potential discounts on Travel Tuesday will depend on your flexibility, experts say.
“If you have zero flexibility,” said Hayley Berg, economist at Hopper, then “if you see a good deal before Travel Deal Tuesday, feel free to book it.”
How Travel Tuesday works
People wait in line for security checkpoints ahead of the Thanksgiving holiday at O’Hare International Airport in Chicago, Illinois, U.S. November 22, 2023.
Vincent Alban | Reuters
Similar to Black Friday and Cyber Monday sales, Travel Tuesday deals sometimes begin to roll out before the day itself, said Dengler. They might even stretch into the day after.
Nonetheless, you will typically need to book the flight, hotel stay or cruise trip by the end of the day in order to reap the benefits, he said.
As you shop, make sure to read the fine print in case discounts only apply for certain routes and days, Dengler explained.
Retailers often have a limited stock for Black Friday and Cyber Monday doorbusters. With Travel Tuesday, there may be a limited number of airline seats or hotel rooms, NerdWallet’s French said.
“They’re not going to fly two planes on the same route at the same time,” she said.
‘Be ready’ to book
Travel Tuesday might be better suited for deciding when and where you’ll go for an upcoming vacation in 2025, versus a very specific itinerary home over the holidays.
If you are not flexible on the days and destinations you plan to travel to and you find a flight available at a price you’re comfortable with, “book that trip right now,” French said.
“If you wait until Travel Tuesday, then that deal could be gone,” she said. “You don’t want to wait for Travel Tuesday for it to be sold out.”
In some cases, it doesn’t hurt to book ahead and keep browsing for potential price drops, experts say.
You typically have 24 hours from booking to cancel for a full refund as long, as it’s seven days before a flight’s scheduled departure time, Dengler said. Plus, some airlines don’t have change fees for non-basic economy fares, he said.
If those terms are in your favor, “if you see a better deal on Travel Tuesday, simply cancel your current bookings and book the Travel Tuesday offer,” Dengler said.
On the flip side, if you’re less tied to specific dates and places, but have a general sense of where and when you want to travel, then holding off until discount days may be worthwhile.
“We tend to see the deals do get better and better the closer we are to actual Black Friday or actual Travel Tuesday,” French said.
The biggest takeaway for travelers is to start thinking about what you might want to book, Berg said.
“I really encourage travelers to do that exploration now so that on Travel Deal Tuesday, they can be ready to actually book,” she said.
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