Although President Donald Trump had not yet released a formal tax proposal for his second term as of Friday, advisors should focus on three of the proposals he’s discussed if he is reelected and Republicans are able to buck polling and keep control of the Senate and win back the House.
Trump has often indicated he wants to increase take-home pay. “Most recently, this took the form of an executive order that postponed payroll taxes for employees from September 1, 2020, through the end of the year,” notes Ben Rizzuto, retirement director for Janus Henderson Investors.
That deferral affects individuals with incomes under $4,000 during a biweekly pay period, calculated on a pretax basis. Although it’s just a temporary deferral, Trump has said the deferred taxes could later be forgiven, or the cut made permanent. When he signed the order, he vowed to “terminate the tax” if reelected.
But “from a retirement planning standpoint, the change would directly affect Social Security because payroll taxes are used to finance this and other social-insurance programs,” Rizzuto warned.
Trump has also proposed reducing the capital gains tax from the current 20% rate to 15%, in addition to indexing it to inflation.
Indexing capital gains for inflation would benefit the top 1% of households in the U.S. because they would nab 86% of the benefit, Rizzuto said, citing the findings of a study by the Penn Wharton Budget Model.
Trump’s full-year 2021 budget proposal also outlines several changes that could impact those who currently hold or are seeking to secure student loans to fund their education. Overall, his proposals would cut funding for student loan programs by $170 billion over 10 years and increase borrowing costs, Rizzuto said.
While the ability of a reelected Trump to enact any of these proposals hinges on how much control Republicans retain in Congress, check out the gallery above to see how advisors can best position their clients ahead of these possible changes.
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