While waiting for states to finalize the presidential election results and assign their electoral college votes, Tom Petty’s song “The Waiting” is stuck in my head. The reality is the outcome of the president and Senate is just the starting point for the election’s potential impact on personal financial planning.
Taxes are always front and center when it comes to financial planning. Biden’s proposal would essentially reverse Trump’s Tax Cuts and Jobs Act (TCJA) from 2017. The TCJA is scheduled to sunset, or revert to the previous law, after 2025 anyways. Trump’s plan would extend the law beyond 2025. So much of the Biden plan is merely accelerating that sunset.
Anecdotally, many taxpayers are unaware that their income taxes probably went down with TCJA. Income and family situations frequently fluctuate year-over-year with bonuses, job changes, children, and stock compensation. Then, combine these personal changes with new laws related to PEP, Pease, deduction limits, exemptions, and tax rates. It is no wonder that most taxpayers have a difficult time seeing how tax law changes affect their actual tax rate.
So, Biden has expressed his desire to eliminate the TCJA sooner rather than later. We’ll just have to wait and see if he can turn that proposal into law. How long will that take? Let’s look at the last two major presidential legislations to see if that can give us a clue.
Tax Cuts and Jobs Act
Trump’s primary legislation, the TCJA, was not signed into law until 11 months after the inauguration when the House, Senate, and president were ALL Republican. While Congress passed the law in December 2017, the effective date wasn’t until January 2018. I distinctly remember pouring through the new law, speaking with clients about accelerating deductions while finishing up my Christmas shopping, and making some critical decisions before New Year’s. The bottom line is it took time for the law to develop, and there was time to prepare and take action if necessary.
Affordable Care Act
What about Obama? When all three elections went to the Democrats in 2008, it took 14 months after the 2009 inauguration to pass Obama’s primary legislation, the Affordable Care Act (March 2010). It wasn’t until 2013 that higher-earning taxpayers paid more Medicare taxes from wages and investment income resulting from the law. Again, there was ample time to digest and plan around these changes.
The Biden Plan
We still don’t know the outcome of the Senate and presidential races (as of 9:00 am on 11/5). Some believe the Senate majority will not be decided until a runoff election for Georgia in January. If Biden wins and Republicans control the Senate, it may take even longer for legislation to be passed and could be a watered-down version of his proposal to end the TCJA. Even if the Democrats sweep, it will still take time for legislation to develop and become law. We just have to patiently wait and see what happens. Then, we can consider new information before taking the next action with our financial plan. As the Tom Petty sang, “waaaaaaiting is the hard-est part.”
