As the election approaches, the influx of tax policy proposals can lead investors to feel overwhelmed and stressed. Experts warn that these emotions can trigger impulsive financial decisions. For instance, Democratic nominee Vice President Kamala Harris plans to introduce middle-class tax cuts while increasing taxes on the wealthiest Americans and corporations. On the other hand, former President Donald Trump aims to extend tax breaks from his first term and eliminate taxes on Social Security benefits. Additionally, Trump supports imposing higher tariffs on imported goods. However, it is crucial to differentiate between a candidate’s tax proposal and actual legislation, which requires approval from Congress.
The political landscape remains uncertain, with the control of the House and Senate up for grabs. The trillions in tax breaks implemented by Trump in 2017 are set to expire after 2025 without Congressional action. These provisions include lower income tax brackets, larger standard deductions, increased child tax credits, and higher gift and estate tax exemptions, among others. Families and financial advisors may need to engage in multi-year planning for issues like estate and gift tax exemptions, but the extension of these provisions is unpredictable. Therefore, it is wise to refrain from making significant financial decisions until new tax laws are officially enacted.
Louis Barajas, a certified financial planner, emphasizes the importance of not making hasty decisions based on proposed tax laws. Actions taken prematurely can backfire if the legislation is not passed or if details are altered during the legislative process. Barajas, who is part of CNBC’s Financial Advisor Council, suggests that tax decisions should align with long-term financial goals. It is essential to recognize that emotions often influence financial decisions, according to financial therapist Rick Kahler. When candidates propose tax hikes, investors may fall into a “scarcity mindset,” fearing that increased taxes will significantly deplete their resources. However, Kahler advises against making decisions driven by strong emotions, emphasizing the importance of maintaining composure during uncertain times.
Regardless of one’s financial situation, it is crucial not to let fear guide decision-making processes. Kahler suggests taking a step back and breathing deeply when faced with overwhelming emotions. Making decisions from a place of panic or anxiety can lead to undesirable outcomes. Instead, investors should focus on their long-term financial plans and consider the potential impact of proposed tax changes on their overall financial well-being. By staying informed, consulting with financial experts, and maintaining a rational mindset, investors can navigate the complexities of tax policy proposals and make sound financial decisions for their future.