In the early morning of November 6, as the U.S. presidential election results named Donald Trump the winner, many Americans and their financial advisors started to predict that lower taxes would be here to stay under his presidency.
For the previous year, there was widespread anticipation about the potential expiration of the 2017 Tax Cuts and Jobs Act (TCJA), commonly referred to as the Trump tax cuts. This legislation represented the most significant reform in the U.S. tax code over the past three decades, incorporating extensive tax reductions for both corporations and individuals. The provisions for individual taxpayers, including reduced tax rates for most Americans, are set to expire at the end of 2025.
However, with Trump’s re-election and a majority in both houses of Congress, it’s anticipated that the TCJA might be extended.
Daniel Milan, managing partner at Cornerstone Financial Services in Southfield, Michigan, noted, “There was a sense of relief among our clients, even among those who were not in favor of his re-election. It seems to help them cope with the disappointment of Vice President Kamala Harris’ loss.”
Benefits to Americans from an Extension of the Trump Tax Cuts
If the Trump tax cuts continue, Americans might see stronger investment portfolios and economic performance, at least in the short run. This optimism is reflected in the recent performance of the stock market, with 401(k)s and other investments climbing, partly due to the expectation that Trump will maintain or even further reduce corporate tax rates. Both the Dow Jones Industrial Average and the S&P 500 reached new highs right after the election and have stayed robust.
James Knightley, chief international economist, and Dutch Bank ING suggested in a report, “Companies that had postponed investment due to election and regulatory uncertainties might now be ready to invest more aggressively.”
Economists predict that this could lead to increased corporate profits and overall economic growth. Scott Anderson, chief U.S. economist at BMO Economics, has revised his economic growth forecast for 2025 up to 2.2% from an earlier 1.9%, citing the boost in consumer and business confidence and stock market performance resulting from Trump’s victory.
Lower Tax Rates. One of the major benefits for most Americans was the reduction in income tax rates. The highest rate decreased from 39.6% to 37%, and other brackets saw reductions as well. These cuts are set to revert to their pre-TCJA levels at the end of 2025 unless extended.
“With Trump’s victory, there’s a renewed belief that these cuts will be extended or even made permanent,” Milan commented, “which is definitely good news for personal finances.”
This expectation of continuing low tax rates means Americans are less pressured to carry out financial maneuvers like Roth IRA conversions, according to Jim Czerniak, chief investment officer at Ambassador Wealth Management in Warrenville, Illinois. A Roth conversion involves moving assets from a traditional IRA or 401(k) to a Roth IRA, where future withdrawals are tax-free and there are no required minimum distributions.
Estate Planning: For individuals with high net worth, the election results also reduce the urgency to transfer assets to shield them from higher taxes. The TCJA had doubled the federal lifetime gift tax exemption and indexed it for inflation. In 2024, each person has a $13.61 million federal estate and gift tax exemption, which would revert to half that amount after 2025 without further legislative action.
“These were critical discussions for our clients, but the election results have largely made those concerns irrelevant,” Milan explained.
Potential Downsides of an Extended TCJA for Consumers
The most significant drawback is the potential for a larger federal budget deficit, although the effects might not be immediately noticeable. The Committee for a Responsible Federal Budget estimates that a complete extension of the Trump tax cuts could enlarge the federal deficit by $4 trillion to $5 trillion over the next decade.
A growing deficit may lead to higher inflation and long-term interest rates, which could increase the cost of living and make borrowing more expensive for both businesses and individuals.
“The Federal Reserve might need to halt or reverse its easing policies sooner than planned if inflation escalates,” Anderson pointed out. “However, this is likely a concern for post-2025 rather than immediately.”
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Passionate about analyzing economic markets, Alice M. Carter joined THE NORTHERN FORUM with a mission: to make financial concepts accessible to everyone. With over 10 years of experience in economic journalism, she specializes in global economic trends and US financial policies. She firmly believes that a better understanding of the economy is the key to a more informed future.
