Capitalist Investor

What the Upcoming Tax Cut Expiration Means for Investors and the Market, Ep. 317

• Strategic Wealth Partners

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Unlock the Secrets Behind the Looming Tax Cut Expirations—What Does It Mean for Your Wallet and Investments?

Are you prepared for one of the most significant financial shakeups of the year? In this episode of the Capitalist Investor, host Derek sits down with financial expert Dave Abate to break down the high-stakes world of tax reform, expiring tax cuts, and how the current political climate could impact your bottom line. Whether you’re a seasoned investor, business owner, or simply navigating your personal finances, this conversation is packed with the actionable insights and strategies you need to stay ahead.

What’s Inside This Episode:

  • The Real Impact of Expiring Tax Cuts: How will the end of the 2017 Trump tax cuts affect you and the broader economy?
  • Political Chess: A behind-the-scenes look at Congressional pressure, market reactions, and what the next steps in tax legislation could mean.
  • Estate Planning & Tax Strategies: Why 2025 could be a critical year for both individuals and high-net-worth families, plus practical moves you can make now.
  • Market Volatility Explained: Insights on tariff headlines, the unpredictable market swings, and what this means for equity investors.
  • Action Plans for Uncertainty: Should you convert your IRA to a Roth? How do potential changes affect your long-term financial game? Dave and Derek share their expert planning advice.


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Special thanks to Dave Abate for guest insights, and the entire Capitalist Investor team for production support.

#TaxReform2024 #FinancialPlanning #InvestingAdvice #EstateTax #MarketUpdate #CapitalistInvestor #RetirementPlanning

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Hello and welcome to this week's episode of the Capitalist Investor. We got a special treat this week. Dave Abate. How you doing, buddy? I'm doing great. So. Happy to be back? Heck, yeah. So Tony's on assignment this week, so we're lucky to get Dave in in his place. And we're going to talk about taxes today. So, you know, there, this is probably one of the hottest topics out there right now. I know it's been a daily barrage of tariff news and Republicans and Democrats fighting with each other, but something we've been talking about for a long time now is the expiration of these tax cuts and that happens at the end of this year. So we'll go through briefly here, kind of talk about what is sunsetting, what that would look like if nothing happens, and then kind of talk about, you know, kind of what we see happening as far as the, you know, the, the new legislation. Because that's going to be, that's going to be a hot topic, especially if these tariffs get done, you know, they're, they're going to be pushing, I think pretty hard for some significant tax changes. Derek, I think you did a great job setting the table here. It feels like, you know, since the election that sentiment has shifted so much. Like there was so much enthusiasm coming out of the, you know, the election result in terms of like a more, you know, business friendly environment regarding regulation. And everyone was kind of anticipating a more tax friendly environment as well, you know, setting the table for businesses just to be more profitable. And really what we've gotten since the middle of February is just a daily barrage of trade policies and tariffs and a lot of, you know, a lot of headwinds, we'll call them in terms of global trade and things like that. So now more than ever, I think the market is looking for and really needing some good news in the form of, you know, some tax reform and some bare minimum, you know, extension of what was, what was put into Place in 2017. But yeah, I think it's, there's so much pressure now, I think, to get this minimally extended. The market's ready for it. Yep. And as, as you mentioned, all that, as you guys probably know, we record this on Wednesday. This is, you know, just a little mini sidebar. It's been one of the craziest weeks that, that I can remember because these swings have been so huge for no real reason whatsoever. You know, the markets just opened, so it could be a totally different story by the end of Wednesday. But, you know, we're up, you know, three and a half percent on the NASDAQ and to almost over two and a half percent on, on the S&P 500 based simply on Trump saying a couple nice words about China and Powell. That's literally what happened. Yeah, I think there's a couple of reasons. I mean, Trump is remaining consistent. I like to sometimes refer to him as the agent of chaos. He, he did kind of pick on Jay a little bit there. Yeah, I think he called him a loser. Yeah, he, he went hard after and. Then, you know, the latest comment was, you know, no intentions ever to, to fire him. So I think, you know, at bare minimal, it's, it's just, it's just bare minimum, it's just, you know, introducing the unpredictable nature of what we can't expect. So I think that the market is having problems digesting all this. Yep, for sure. For sure. So, you know, so yeah, like I said, you know, hopefully, you know, we're, we're on a 90 day clock. You talk to people out there, whether it's, you know, large corporations who, you know, have, you know, offshore offshore products that are coming in or talk about small business owners. You know, I've heard a lot about that lately, just not knowing what to do, whether, you know, it's the cost of your supplies or, you know, the lead time on your supplies. We talk about watches from time to time. You know, it's, I only mentioned that because there was the big watch watch show in Switzerland a couple weeks ago and, and terrorists were front and center there because, you know, a lot of those fancy watches come from Switzerland. I don't remember exactly what it was on the big board, but something like 31, I want to say. So, so yeah, you know, it's, it's, it is a, that and that's why you see the market react the way that you do because no one really knows what to expect right now. And, and you know, rather than, you know, belabor those points for, for another week, these taxes are going to be front and center pretty darn quick, hopefully. And so yeah, so let's, you kind of, let's kind of run through a little bit on, you know, what's expiring. So, and we've touched on it before, so I'm not going to go into heavy detail, but if nothing happens, it's just like, you know, well, you might not know, but back in 2008, for the 2012, for the fiscal cliff with the expiration of the Bush tax cuts that ushered in the Obama tax code, which basically the Trump Code would revert back to if nothing happens. So, you know, Tone, I know, you know, Tony and I have both, both been harping on it for a while now. You know, if nothing happens, we're going back to the Obama level tax brackets. You know, the highest bracket would be, you know, only go up by like 2.6%, up to 39.6%. The, the top bracket, that is. But the, the spacing of the brackets, you know, definitely gets compressed. So, you know, it's, it's, you know, you hate to say it, but kind of the, the typical middle class kind of squeeze because if nothing happens, you know, I would say kind of that, that middle, you know, brackets are going to have, you know, between like a 10 and 15% tax increase. Yep, yep. And you know. Yeah, go ahead. Yeah. And then like you're saying, Derek, like definitely an unfriendly move from, you know, the individual taxpayer point of view. So the thought has always been, as, you know, as our firm has been talking about is like this could 2025 could be a really important planning year to get some things done if we, if it looks like nothing's going to be done to extend the tax cuts and we get a sunset because there would be some material changes in the rates going forward after December 31st. Now we kind of hedged ourselves at the beginning and said we're expecting these things to be extended, but it's going to be super important to monitor this stuff throughout the summer and the fall. Yep, for sure. And I'll just hit on a couple, a couple extra ones. You know, the standard deduction would get reduced, but you know, the salt tax would go back up. There wouldn't be a cap on it. Child tax credits would go down, amt, alternative minimum taxes, the exemptions would lower. So I don't think really anyone on the planet really knows how AMT works, but it would go up for sure. And you know, estate tax is always on the table, I feel, so. But the current state is in a very, very good position. I believe the exemption's up to like $13 million per person. This is crazy. So the 2025 number is actually just under 14 million per individual, 28 for married couple. And that would get sliced in basically in half, you know, if it's sunset. So that's a super important potential change for those ultra high net worth folks. Yep. So, so, you know, what, what can we expect you? You know, I think, you know, there's obviously been a lot of back and forth between the political parties since Trump has Taken over. While, you know, some people probably just, obviously the market's down, probably describe it as, you know, kind of a rough period, his approval rating only seems to climb further and further up. And that's because he's, you know, for once, he is actually doing exactly what he said he was going to do on the campaign. Right. There's no, there's no waiting, there's no exploratory committees. You know, he's coming in with a sledgehammer. And taxes were a huge thing, which he, which Trump campaigned on. So, you know, have had lots of conversations about, you know, what I think will happen with no tax on tips, you know, probably more for our clients. No tax on Social Security is a big one that they campaigned on. No tax on overtime, which, you know, I love that, that that seems to solve a problem with, you know, work ethic that seems to be plaguing the country. And more importantly, I think for the market, potentially, you know, reducing the corporate tax rate. And, you know, I heard Mr. Wonderful talk about this. You know, kind of where we're at right now, I believe it's like 21%. Yes. And that was a reduction from the Trump tax cuts. This was a big point on the campaign with Kamala Harris, you know, jacking that rate up makes America less competitive. So I believe that the Republicans and Trump are really going to push hard for a reduction in that, you know, tax rate, for corporate tax rate. And, you know, that's, they're trying to get it down into like the 15% range. Yeah, I think that would be huge. And, you know, it's, it's really kind of one of the offsets that is needed to kind of make up what we'll call for, for this potential headwind with the tariffs. Right. There's got to be some kind of offset. And if you think about it, like the math of it is if all these tariffs or a portion of them come into play, like that should be generating more revenue, which you can then offset with a reduction in other areas. So it's kind of buying you the space, we'll call it, to do some of these things. But to Derek's point, like lowering that corporate tax rate would be. The market would be very excited for that news. Yep. You know, that would be, you know, one of those crazy record days if that goes through and the corporate tax rates push down to 15%. And again, you know, it's the debate that you'll hear, you know, depending on the news station that you're listening to, you know, is going to be, you know, giving a tax break for billionaires will probably be the counterargument to lowering the, the tax rate, the corporate tax rate. But, you know, that really drives production in this company, in this country. And, you know, the. When times get tough for corporations, they immediately cut employees. That's really, really kind of their first move. So if they have more wiggle room when they're paying less taxes, that is generally thought to be a very good, A good sign for, you know, profitability for production and for labor. And those are all things that this administration is trying to move forward. That's exactly right. The more profitable that business can be now they have the capital and the means to hire that next incremental employee to grow their business. Right. So it's all connected sometimes, like, you know, everything is politicized and it's, you know, this is only benefiting the, the upper tier and things like that, but it's really, it's really benefiting Main street and that next employee that the company can now hire and, you know, compensate with more competitive wages. Yep, for sure. So, yeah. So what do you think? You think they'll get it done here? Let's put it this way. I think we've kind of been painted in a corner. I think the good news is there's more pressure, it feels like, for Congress to move quickly on this because there's, you know, this volatile environment. Like, it's. It feels like we don't have another option. So I'm expecting a positive win on tax reform, and I'm, I'm remaining hopeful on that. Yep. What about no tax on Social Security? You think they'll. They'll get that one done? That's going to require a little bit more gymnastics, financial gymnastics. That one's. I'm more 50. 50 on. You know, it would be, it would be something if they got that through. It would definitely be something for. Yeah, it's, it's kind of a. It's a commentary on, on where we are politically where, you know, people would be fighting against tax cuts. I always remember, you know, growing up, it was, you know, the, you know, read my lips, no new taxes, you know, type type headlines, and no one wanted to pay taxes back then. It was a pretty, pretty much a universal thing. And now. And now that seems not to be the case. And how you could, you know, politicians, they'll never touch Social Security, right? That. No, no one's going to be brave enough to say, hey, we need Social Security reform. You know, even though we do no tax on Social Security seems like a very, you know, easy way to, to give people who are living off of that a little extra. And I don't know how you could vote against that, but I think it's just because, you know, they don't want to give the other party the win is basically what it comes down to. You're right on that one. And, you know, the math part of, is making sure there's enough offsets to make up for that lost revenue. There's ways they can do it, right. So depending on how you, you play the numbers, you can, you can definitely get there. So it's just like there's calculus involved in terms of how does this impact my voter base. Right. So. So, yeah, so what should we be doing in 2025 as we sit here? You know, either way, right, because one of two things are going to happen. We're going to get new tax legislation or it's going to expire and we're going to get the, the Obama level tax code, basically. Yeah. I think for those folks that have, basically I would have like two plans, right. Plan A and plan B. Like, what course am I going to go down if these, if these rates sunset, you know, what is my option? You don't want to be figuring this out in the middle of December. Right. You kind of want to put some thought into the planning of what would I do if we're going down the sunset path. And alternatively, what does it look like if these get extended or if there's tax reform to make things even more, you know, advantageous. So I think the idea is just to have it mapped out for either scenario. And you don't want to be in that, you know, fire drill at the end of the year trying to, trying to scramble at the last minute. Yes, definitely. That's a good rule in general as well as I know you and I are, you know, always. Scrambling is probably the wrong word, but, you know, people want to get in Roth conversions at the end of the year, you know, so they don't have to happen on December 31. They can happen anytime throughout the year. So. But yeah, you know, I think you're, I think you're exactly right. You know, the, with the potential for taxes going up, that's probably going to make, you know, Roth conversions less attractive next year. So if you're, if you're, if you have a plan and you're working on a strategy, you know, you might want to hedge your bets a little bit and, you know, increase that, that Roth conversion in this year. There Are, you know, once you're in retirement, you know, there's limited tax moves that you can make. So, you know, this is probably also a good time to mention, you know, if you're not in that retirement or pre retirement stage, having a tax like a long term tax plan and a long term tax strategy is extremely important because a lot of people think they're going to be paying less taxes in retirement automatically and all their money is saved in their IRA and their 401k and all of that money is getting taxed. So you really need to understand how that works and taxes work on your investments. So monitoring the situation is going to be important. Yeah. And the next biggest one, I would say is, you know, on the estate planning front, Right. If those exemption or those lifetime exclusion amounts get cut in half, like, you need to be ready with your estate planning attorney to kind of adjust to the new landscape going forward because that, you know, 40%, 40% tax rate on the amount above the excluded amount is just, that's a tough pill to swallow. Yeah. And that's an avoidable one with the right kind of planning. Yeah, for sure. So, all right, well, we will, we will see how this plays out. But it's, yeah, it's definitely going to be a battle for sure. And you know, hopefully, hopefully it works out because a lot of, you know, I'm, I'm not, you know, super, super MAGA guy or anything like that, but, you know, the, this type of tax code that they're laying out I think would have a huge benefit on the economy. And, you know, we've been in the, in the market for sure. And you know, we've been talking about that for some time now. So. Any other final words, Dave? I think this is just one of those that we have to continually monitor because I feel like it's going to be a little bit of a struggle to get all this stuff passed because it's a big deal in time. So it's going to be important to watch this stuff as it goes through. And then as we mentioned before, just kind of at the ready. Have your plans set it, you know, set for path A, path B. So there, you know, regardless of how it lands, you're ready to roll. Mm, for sure. So. All right, well, thanks, Dave, for filling in for Tony this week. We appreciate you and thanks everyone out there for listening. If you guys have any questions or comments or show ideas, hit us up@infowpconnect.com and we'll talk to you soon. The opinions expressed in the podcast are for general informational purposes only and are not intended to provide specific advice or recommendations for any investment, legal, financial or tax strategy. It is only intended to provide education about the financial industry. Please consult a qualified professional about your individual needs.