Trump’s Victory Could Extend Tax Cuts, Boosting U.S. Economy, Experts Say
In the early hours of November 6, when Donald Trump was declared the winner of the U.S. presidential race, many Americans and financial advisers began to predict that the Trump-era tax cuts, which were set to expire in 2025, would likely be extended. The 2017 Tax Cuts and Jobs Act (TCJA) was the most significant tax overhaul in 30 years, featuring major reductions for both businesses and individuals. With Trump’s return to the White House and his party controlling both chambers of Congress, experts believe the tax cuts could remain in place.
Daniel Milan, managing partner at Cornerstone Financial Services, noted that even those who didn’t support Trump felt a sense of relief regarding the tax cuts’ likely continuation. “It’s almost like self-soothing,” he explained, as many sought comfort in the financial stability that an extended TCJA could bring.
The potential extension could benefit Americans in several ways, including stronger investment portfolios and continued low corporate tax rates. Following Trump’s victory, the stock market surged to new heights, with the Dow and S&P 500 breaking records. The optimism is attributed to hopes that corporate tax rates will either stay low or possibly drop further. This boost in confidence is also expected to stimulate corporate investment, which could further drive economic growth. Scott Anderson, chief U.S. economist at BMO Economics, raised his 2025 growth forecast, suggesting that Trump’s victory could increase consumer and business confidence.
For individuals, the continuation of the TCJA means that tax rates, which were lowered across multiple income brackets, would remain. The top rate, which dropped from 39.6% to 37%, along with other reductions in the tax brackets, would continue under Trump’s administration. If these cuts expire, as originally planned in 2025, the tax brackets will revert to pre-TCJA levels.
For high-net-worth individuals, the tax cuts offer additional benefits, such as the increased federal lifetime gift tax exemption, which was doubled under the TCJA and is indexed for inflation. The exemption for 2024 is $13.61 million per individual. The expiration of the TCJA could halve this exemption by the end of 2025. However, with Trump’s win, many advisers believe these changes will be preserved.
Despite these advantages, the potential downside of extending the TCJA is the ballooning budget deficit. The Committee for a Responsible Federal Budget warns that a full extension of the tax cuts could add between $4 trillion and $5 trillion to the deficit over the next decade. This growing debt could lead to higher inflation and long-term interest rates, increasing costs for consumers and businesses alike. Economists like Anderson caution that if inflation becomes problematic, the Federal Reserve may need to pause or reverse its current policies, potentially leading to higher costs for everyday goods and services.
In conclusion, while extending the Trump tax cuts could bring financial benefits in the short term, particularly for investment portfolios and corporate profits, it may also contribute to long-term economic challenges, especially if the national deficit continues to grow.
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