- Potential tax policy changes could lead to a rise in federal budget deficits if the TCJA tax cuts are extended without addressing the fiscal shortfall.
- Expiring tax provisions may impact over 60% of tax filers, with possible hikes in income and corporate tax rates by 2026.
- Both 2024 presidential candidates present distinct approaches: one favoring corporate tax cuts, the other proposing targeted credits and increased taxes on high-income earners.
- Market stability may rely more on economic and inflation trends than political outcomes, though tariffs and fiscal policies could impact key sectors.
In the 2024 election, tax policy will be one of the most debated issues, with crucial implications for both individual and corporate tax rates. A major point of discussion is the 2017 Tax Cuts and Jobs Act (TCJA), a defining policy from the Trump administration, much of which will expire by the end of 2025 unless extended. Prolonging these provisions, as former President Donald Trump suggests, could maintain current lower tax rates, but it could also exacerbate the federal budget deficit, an issue his campaign has yet to address with a comprehensive solution. The suggestion of increasing tariffs on imported goods as a revenue-generating tool has been floated, but details remain scarce.
Election In The U.S And its impact on Market
If the TCJA provisions are not extended, many Americans could face higher tax bills, with increased rates for up to 60% of tax filers, impacting deductions, child tax credits, and exemption amounts. Corporations would face a hike from the current 21% rate back up to 35%, which could prompt shifts in corporate behavior and investment patterns. The Trump campaign’s approach to tax policy reflects a strategy to encourage domestic manufacturing by proposing a reduced tax rate of 15% for companies that manufacture within the U.S. This would complement his proposed reduction of the overall corporate tax rate to 20%, aiming to spur growth in American industries.
Meanwhile, Vice President Kamala Harris is prioritizing measures like expanded child tax credits and incentives for first-time homebuyers, policies aimed at easing the financial burden on middle- and lower-income families. Harris also advocates for increasing the capital gains tax on high earners from 20% to 28%, signaling a different approach to addressing economic inequality. Both Trump and Harris propose exempting service workers’ tips from taxes, which could support the financial well-being of hospitality sector employees, yet it remains uncertain whether either proposal would garner broad legislative support.
How The U.S. Election Will Impact The Markets
On tariffs, a policy tool reshaped in recent years, both candidates appear committed to a more protectionist stance, a departure from previous free-trade norms. Trump, in particular, has proposed new, sweeping tariffs should he return to office, whereas President Joe Biden has upheld and even expanded some tariffs implemented under Trump’s term. This shift highlights a bipartisan acceptance of tariffs as a lever to stimulate domestic production and protect American jobs, although it also risks disrupting global trade relationships.
Beyond the economic implications, the upcoming election also has potential to influence markets and investor strategies. While there’s a common perception that elections drive market volatility, historical data indicates that market performance is often more closely tied to economic fundamentals, such as GDP growth and inflation, than to the political party in power. U.S. Bank investment analysts examined data over 75 years, concluding that medium- to long-term market outcomes are minimally influenced by which candidate wins the presidency. Rather, trends in the broader economy and other market indicators tend to exert a greater influence over time.
Election’s Influence On The Markets
Market history does reveal some patterns, though, especially in periods of divided government. For instance, markets have often performed well under a Democratic president with a Republican-controlled Congress, as well as when the Senate and House are split under Democratic executive leadership. Conversely, markets tend to show moderate returns under a Republican president with a fully Democratic Congress. These scenarios suggest that markets may find stability in gridlock, as it often limits rapid shifts in policy, allowing for more predictable economic planning.
Despite these historical patterns, market sectors such as technology, energy, and healthcare often feel immediate impacts from election results, as regulatory priorities shift with new administrations. For example, Harris’ support for affordable healthcare expansions may influence the health sector, while Trump’s tax incentives for domestic manufacturing could affect technology and industrial firms. U.S. Bank strategists recommend that investors pay close attention to how candidates’ policy proposals align with specific industry interests, as these can impact stock performance more directly than overall market conditions.
India and China Complete Troop Withdrawal, Opening Path to Renewed Bilateral Ties
The 2024 election will not only affect the presidency but also determine the composition of Congress, with implications for fiscal policy and economic regulation. A divided government could signal stability to markets, as radical policy changes would be less likely. For investors, this might underscore the importance of maintaining a focus on indicators like inflation, corporate earnings, and GDP growth, which have historically influenced market returns more reliably than political control alone.
Midterm election years also hold insights for stock market behavior. Research shows that the S&P 500 has generally outperformed during the year following midterm elections compared to other years, regardless of which party gained seats. This pattern suggests that market participants often recalibrate after midterms, viewing them as a point of policy direction and governance stability.
Still, certain key policy issues will remain under scrutiny through the election period, particularly tax policies affecting both individual and corporate taxpayers, state and local income tax (SALT) deductions, and spending priorities such as infrastructure and defense. Other focal points include the future of Social Security and Medicare, immigration policy, and regulatory shifts that could influence sectors like finance and technology. In particular, candidates’ stances on tariffs, especially concerning China, will remain a hot-button issue with significant global trade implications.
Geopolitical conflicts
Geopolitical conflicts, such as the ongoing U.S.-China tensions, also hold sway over market stability. With each administration proposing different responses to these global issues, foreign policy outcomes could affect not only investor confidence but also global economic dynamics.
The possibility of election result delays, particularly in a closely contested race, could introduce short-term volatility. Both the 2000 and 2020 elections offer reminders of how delays in verifying results can temporarily destabilize markets. In such cases, investor caution around riskier asset classes could intensify until there is clarity, although the long-term impact on market trends has generally been muted once results were finalized.
Looking forward, investors should monitor economic indicators and policy trends rather than election results alone. As both the White House and Congress come up for grabs, this election will test the direction of U.S. fiscal and trade policy. While it is natural to anticipate some market reaction to the election outcome, the more consequential shifts will likely stem from economic fundamentals like inflation rates, interest rates, and corporate earnings.
For voters, tax policy, tariffs, and social spending programs will be key issues, and for investors, understanding how each candidate’s policy priorities might influence specific sectors will be critical. Staying focused on broader economic trends will likely prove the most effective strategy for navigating any short-term market turbulence triggered by the 2024 election.