With every presidential election, corporations in the U.S. face changing policies and potential rules governing finance. New tax policies can affect a variety of things well beyond expenses and cash reserves–they can shape lending practices as well as growth and innovation opportunities. As such, weighing possible election outcomes and corporate tax effects is a worthwhile endeavor for businesses every election cycle. How presidential candidates’ tax policies will influence future company opportunities and chances for success need to be examined. No matter the outcome, it’s important to have a strategy to navigate these changes. Therefore, knowledge is the first step in determining how best to respond once the election is decided.
Notably, this year’s presidential candidates include Democratic nominee Kamala Harris and the Republican candidate, Donald Trump. While these candidates share many political views in common, their approach to tax and finance are perhaps the most divergent. As a result, it’s not surprising that these presidential candidates’ tax policies could have very different effects on businesses. Of course, neither is clearly all bad or perfectly good when it comes to corporate impacts. However, evaluating short-term and long-term effects related to election outcomes and corporate tax repercussions provides insights for strategy development. The following thus helps with such an exercise based on the presidential candidates’ tax policies.
Overview of the Presidential Candidates’ Tax Policies
In summarizing an overview of the Democratic and Republic tax approaches, one is tax-heavy while the other is opposite. Consistent with Democratic ideologies, Harris’ tax policies strive to more evenly distribute wealth. As such, she has supported policies that tend to protect lower- and middle-class earners while targeted higher income entities. This includes corporations, which would be taxed at higher rates. Currently, corporate tax rates are at 21%, but Harris has supported increasing these rates to 28% or higher. She also supports raising the capital gains tax while increasing income taxes for the top 1% of individuals at 39.6%. These taxes would then be used to support Social Security as well as Harris’ Medicare for All plan. Democratic election outcomes and corporate tax changes would likely see increases in rates in time.
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On the Republican side, Trump aligns his tax strategies with Republican ideologies. His approach involves reducing or eliminating existing taxes across the board. For example, he plans to further his 2017 Tax Cuts and Jobs Act, which would mean lowering taxes further for corporations. He has suggested reducing the current corporate tax rate to 20% from 21%. He also would like to eliminate taxes on both tips for service workers and for Social Security benefits. By reducing taxation, the plan is to infuse more capital into the economy for growth. But at the same time, other revenues must compensate for these reduced tax income streams. Trump’s proposal is to raise import tariffs to 10% across the board with a 60% tariff on Chinese imports. And it involves taxing large endowments of some colleges and universities.
Based on these positions, it’s clear that election outcomes and corporate tax effects could vary greatly. Higher corporate tax rates would naturally reduce profits and available cash flow to some extent. Lower corporate tax rates would do the opposite. But there are longer-term effects that must also be considered from these presidential candidates’ tax policies. Wealth redistribution could boost consumption, especially if healthcare costs are reduced. Higher tariffs on imports could restrict global marketplace opportunities based on reciprocal trade policy reactions. Other considerations for each of the presidential candidates’ tax policies involve growth and innovation potential. Higher taxes could make it more prohibitive to invest in R&D or to explore new options. This is where election outcomes and corporate tax effects can be hard to predict. But it remains important to anticipate all of these potential scenarios in planning a solid corporate strategy.
Election Outcomes and Corporate Tax Finance
While presidential candidates’ tax policies directly affect corporations, finance policies can have a powerful indirect effect. For example, policies that favor increased government oversight and regulation can negatively impact lending and access to capital. Such policies can also introduce additional costs, especially related to compliance, fines, and consulting. At the same time, policies that seek to reduce such oversight make access to capital more liberal in many instances. However, they may also introduce higher risk and greater financial market volatility. Understandably, different companies may have different preferences in this regard. Regardless, election outcomes and corporate tax finance effects must be part of a strategic development plan.
In examining the presidential candidates’ tax policies as well as finance positions, Harris and Trump differ significantly. Donald Trump leans toward less regulatory oversight when it comes to the banking and finance sector. In fact, he favors repealing the Dodd Frank Act while empowering consumers to make their own financial decisions. He also wants to reduce the number of regulations by 50% and reduce the power of the Federal Reserve Bank. He also supports cryptocurrency and wants to weaken if not eliminate ESG requirements and rules. In general, his finance platform looks to liberalize things, which could have both positive and negative impacts as mentioned.
On the Democratic side, Harris has adopted finance policies much different from her opponent. Thus, Democratic election outcomes and corporate tax and finance implications could be different as well. Her stance has been to enhance existing laws that allow investigations into banking compliance. She also would like to support financial institution stress testing of major finance corporations. And she would bolster consumer protections while eliminating medical debts from credit reporting. As a whole, her finance position could undermine lending opportunities to corporations while increasing costs for compliance. But at the same time, consumer debt elimination could increase market consumption that might benefit some companies. And it could result in greater finance sector stability. As is evident, the presidential candidates’ tax policies and finance positions will likely result in divergent climates.
Navigating the Political Winds of Change
The presidential candidates’ tax policies and their financial strategies for the nation reflect varied perspectives. One reflects Democratic ideologies while the other represents Republican views. And both platforms could have beneficial and detrimental impacts on corporations depending on the scenario. Given that it’s impossible to predict election outcomes and corporate tax implications, creating contingency plans for both is smart. This is where relying on expert partners to help with strategic development can be ideal. Notably, the goal is to minimize the negative tax and finance implications for either outcome. And investing efforts into this in advance can best prepare corporations in their efforts to adapt.
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