Worried About Your 401(k) This Election Season? This Is How It Could Turn Out Based On Who Comes To Power

The 2024 election season has kept Americans on the edge of their seats, with the race between Vice President Kamala Harris and former President Donald Trump heating up. As both candidates lead rallies highlighting the policies they'll adopt if they come to power, the stock market has remained highly volatile despite the optimistic economic data. The CBOE Volatility Index has risen by more than 16% over the past three months, signaling uncertainty among investors. 

Harris’s and Trump’s economic visions have been sharpening as both candidates push for tax policies that could significantly impact 401(k) accounts and the broader economy. 

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Economic Policy: Harris vs. Trump

The election's outcome will set the economic agenda for the U.S. for the next four years, directly influencing the markets and, by extension, investors' 401(k) accounts. Harris and Trump have been proposing tax reforms that cater to their respective political bases but come with potential trade-offs that could impact economic growth.

For instance, Kamala Harris aims to expand the Child Tax Credit, offering a $6,000 payment to parents of newborns in their child's first year. She also wants to revive the pandemic-era expanded child tax credit, which provided up to $3,600 per child annually. Harris also stated her plans to subsidize $25,000 for qualifying first-time home buyers. 

Harris also proposes increasing the corporate tax rate from 21% to 28% to fund these initiatives. However, according to the Penn Wharton Budget Model, this plan would add about $1.2 trillion to the national deficit over the next decade and reduce GDP by 1.3%, with a more significant 3% cut projected by 2054.

Harris also vowed to strengthen the U.S. defense during the democratic convention, stating, "As commander in chief, I will ensure America always has the strongest, most lethal fighting force in the world." 

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On the other hand, Donald Trump is advocating for the permanent removal of the Tax Cuts and Jobs Act of 2017. He originally enacted this law, significantly reducing the top individual income tax rate and nearly doubling the standard deduction. 

“He wants to let our tax cuts expire,” Trump said at a rally in New Jersey, adding, “Instead of a Biden tax hike, I'll give you a Trump middle-class, upper-class, lower-class, business-class – big tax cut. You're going to have the biggest tax cut.” 

While these changes initially boosted economic growth, the Penn Wharton Budget Model projects that Trump's proposals would add $4.1 trillion to the deficit over the next decade. Although this might initially boost GDP, the plan is expected to reduce economic growth by 2.1% by 2054.

What It Means for 401(k)s

With each candidate proposing significant tax changes, 401(k) accounts could be affected in several ways. For example, higher corporate taxes could lower the dividend payouts of publicly traded companies, potentially capping retirement savings. 

On the other hand, tax cuts and credits could rally equities, boosting the value of 401(k)s.

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