How the 2024 US Election Could Affect the Economy and Your Retirement

• US Election voters say economic politics is what will sway their decision
• The US National Debt is at catastrophic levels
• There are only two ways to clear the National Debt
• One political side favors socio-economic stability, the other helping small businesses thrive
• Keeping manufacturing on local soil
• Prepare your retirement future for tax hikes
  

Americans are concerned for their financial future

I won’t sugarcoat that this election involves nuances fueled by polarizing policies and party priorities. However, staying in my lane, I can confidently say that America’s financial fitness is one of today’s most pressing issues. It’s a sentiment supported by a recent Gallup poll that registered voters rank economic health as the top concern among 22 issues that will influence their presidential preference. As someone who works closely with mid-to-high net worth individuals and business owners, I can tell you that our choices now will have lasting consequences.

Small businesses fuel our economy

Pragmatically, we have two candidates who have a proven record to look back on. During his previous term, Trump demonstrated he was business-friendly, spurring economic growth with tax cuts and policies that fueled small businesses – the essential engines driving our economy. Unfortunately, what we’ve seen over the past three-and-a-half years is in contrast. Government spending on various programs has ballooned, sparking inflation that’s resulted in higher interest rates and an astronomical National Debt.

Have you ever checked out the real-time National Debt counter? It’s frightening. Today, it’s sitting at a whopping $35 trillion. If that doesn’t spook you enough, let’s put that into perspective: earlier this year, the Global Debt was reported as $315 trillion. See where we’re going here? The US is responsible for over 10% of the world’s debt, an anchor dragging down everything we do. 

So, that National Debt then

The last three-and-a-half years have seen the system spectacularly fail. It’s economics 101: if inflation goes up, you probably shouldn’t be printing money, you should tighten supply. Otherwise, everything goes out of whack, which we’re seeing now. 

What does this mean for us? Thanks to Uncle Sam’s spending sprees, we now have an enormous National Debt to service. The US Government runs like a business. It needs to make revenue to clear the debt, and what’s its income source? Either grow the economy to tip over 4%, or increase taxes. Those are the only two ways the Government can escape this mess. The debt-induced inflation will make getting even close to the 4% required challenging. So, you guessed it, tax hikes are on the horizon. While we predict Trump may increase taxes, it likely won’t be at the level of the Harris Government. 

The Democrats typically tax the wealthy to help support the wider community. If elected, Trump has pledged to lower taxes to spark business activity and drive the economy toward that 4% growth target, rather than relying on taxes to pay off the National Debt. The Trump-era tax cuts expire at the end of 2025 with Estate Tax Exemption ‘sunsetting’. So, the current $23.5 million exemption for a married couple is predicted to land at around $15 million per married couple. We at Stream believe that tax liability will increase even more if Harris wins term, and lessen if Trump does. So, while figures like $23.5 million represent ultra-high net worth, the lower it falls, the more it’ll impact a greater number of Americans.  

The misunderstood tax debate

There’s a lot of misunderstanding about who pays taxes in this country. You mightn’t know that the top 1% of earners contribute about 45% of all income taxes, and the top 10% pay 80% of all income taxes, while the bottom 90% contribute only 19.6%. People like to say that billionaires aren’t paying their fair share, but when you look at the numbers, it’s clear that the majority of the tax burden falls on the highest earners.

Now, here’s where it gets tricky. If you’re a billionaire and taxes go up, you can weather the storm. But higher taxes disproportionately impact you if you’re making around $300,000 or less annually. Your take-home pay shrinks, and you’re suddenly spending more on groceries, gas, and other essentials. This squeeze on disposable income hits business owners especially hard.

How tax increases affect business owners

Many of our Stream clients are business owners who feel these changes acutely. If taxes rise, especially business taxes, they either have to pass those costs on to the consumer or face shrinking profit margins. Take California, for instance. When the minimum wage was raised, it caused a spike in the cost of goods, with simple meals jumping to $18. Businesses with slim profit margins – think grocery stores – can’t absorb those kinds of increases without passing them on to customers or cutting staff. And that’s not sustainable for the wider economy.

The reality behind job creation

You’ve probably heard a lot about job creation over the last few years. But here’s the thing: 16 million of those jobs were people returning to work after being laid off during COVID-19. Those figures don’t represent new job growth; they merely reflect a recovery to pre-pandemic levels. So, when we hear about jobs being created, take those numbers with a grain of salt.

Green policies vs sustainable manufacturing

One side of the political spectrum is pushing for the Green New Deal – investing in wind, solar, and electric vehicles. While I’m all for protecting the environment, these policies have economic consequences. For instance, if everyone in California is forced to switch to electric vehicles, how do we compensate for the gas tax revenue loss that funds road maintenance? It’s a classic case of solving one problem while creating another.

Trump’s policies focus on bringing manufacturing back to the U.S., even intending to impose 100% tariffs on companies that move production overseas. While that may sound extreme, it’s part of a larger strategy to keep jobs and manufacturing on American soil, which would bolster the economy and may have more governance over sustainable practices, as opposed to our lack of control of those offshore.

Retirement planning in a high-tax environment

One of the biggest concerns I hear from clients is about retirement. Financial planners have encouraged people to maximize their pre-tax contributions to 401(k)s and IRAs for years. The problem? When pulled out for retirement, that money is taxed as ordinary income. So, if tax rates rise, which to us is inevitable, you’re suddenly giving a huge chunk of your savings to the Government. Think you’ve got a million in retirement? Afraid not. Make that six hundred thousand if you’re in a 40% tax bracket.

That’s where Roth IRAs come in. While they’re great because you pay taxes upfront and withdraw tax-free in retirement, there’s a catch. If you make too much money, you can’t contribute. And even if you can, the contribution limits are so low that it’s hard to build a sufficient retirement fund to maintain the lifestyle you’re used to (and deserve). That’s why we created the Stream Protection Plan. 

Prepare for the future

Despite who claims victory in November, we’re likely to see some form of tax increase, whether immediately or in the long term. The question is, how do we prepare? I tell my clients they need to create a tax-free bucket for retirement. Minimizing your tax exposure is key to long-term financial security, wealth generation, and protecting your loved ones.

May the best candidate win!

By Tim Whitmore