Yahoo Finance 6 Ways Biden’s Withdrawal Could Impact Your Taxes Next Year
In a historic move, President Joe Biden has officially withdrawn from the presidential race and endorsed Vice President Kamala Harris. Biden, 81, shared the news in a July 21 statement posted on X:
“It has been the greatest honor of my life to serve as your President. And while it has been my intention to seek reelection, I believe it is in the best interest of my party and the country for me to stand down and to focus solely on fulfilling my duties as President for the remainder of my term.”
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The decision to cease his presidential re-election campaign less than four months before Election Day signals the end of his five-decade career in politics. In a subsequent post on X, Biden pledged his support for Harris, 59, as the Democratic nominee.
“My very first decision as the party nominee in 2020 was to pick Kamala Harris as my Vice President. And it’s been the best decision I’ve made. Today, I want to offer my full support and endorsement for Kamala to be the nominee for our party this year,” he wrote.
Biden’s decision to leave the race is an unprecedented move in modern political times. The last sitting president to halt a re-election campaign was Lyndon B. Johnson. In 1968, he ended his bid eight months before the election amid low approval ratings.
With Biden’s exit just a few weeks away from the Democratic convention, experts point out we’re in uncharted territory that could impact the economy in several ways, including your taxes. Here’s how.
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1. Small Business Owners Could be Affected
Biden leaving the race could affect small businesses, according to Dr. Peter C. Earle, senior economist at The American Institute for Economic Research.
“How closely will his replacement adhere to the current Fiscal Year 2025 budget proposal? Among the pledges in that proposal are raising the top individual tax rate to 39.6 percent, increasing the corporate tax rate from 21 to 28 percent, and, most notably of all that for individuals with taxable incomes exceeding $1 million, short-term capital gains would be taxed at a rate as high as 39.6 percent (up from the current top rate of 20 percent).”
Earle stated, “These represent huge leaps in tax liabilities, many of which would fall upon small business owners.”
2. Tax Hikes on the Rich Are Likely to Stay
According to experts, the new nominee will likely adopt a tax policy similar to Biden’s regarding the top earners, so expect the tax hikes on the rich to stay in place should the Democrats win in November.
Christopher D. Burns — CFA, CPA, CFP and assistant director of research with Greenleaf Trust — stated: “President Biden has advocated raising the corporate tax rate to 28%, increasing the top individual income tax rate to 39.6% for incomes over $400,000 for individuals, and increasing the child tax credits.”
He added that the “Democratic candidate may favor similar proposals. The Democratic Convention, the third week of August, may reveal a policy platform that addresses the party’s tax policy preferences.”
Earle explained, “If Biden is replaced by someone who is committed to those changes, those (or similar) tax increases are also likely. If a successor candidate on the Democratic ticket is less inclined to increase the government revenue base, taxes may not rise as much, but there don’t seem to be many dissenters in the Democratic Party where spending is concerned these days. An upward shift in taxes across the board is probably baked in should the Democratic Party be victorious in November.”
3. Congress Shakeup Could Impact Tax Law
Tax plans are always a big talking point during an election, but Burns noted the president doesn’t control all aspects of taxes.
“Presidential candidates tout their tax plans on the campaign trail, but federal separation of powers gives Congress the power to make tax law, not the president,” Burns said.
“The latest federal tax law, the Tax Cut and Jobs Act (TCJA), passed in the House with a vote of 224-201 and the Senate with a vote of 51-49 and was signed into law on Dec. 22, 2017. There were zero yes votes from elected Democrats in the House or the Senate,” he continued.
Burns further explained that the TCJA has several provisions that are permanent and several that are sunset.
“The next president will likely champion their favored tax legislation, but, ultimately, the balance of power in the House and Senate will determine how the sunsetting provisions of the TCJA are tackled for tax years 2026 and beyond,” he said. Burns added that there are plenty of “planning opportunities for investors to take advantage of the current tax laws.”
4. Tariff Policies Could Change
Burns suggested one area that presidents do have power over is tariffs, and with Biden stepping down, the policy could change.
“President Biden has proposed modest increases to certain tariffs. Former President Trump has proposed significant changes to tariffs, with a 10% universal tariff and a 60% tariff on all U.S. imports from China,” Burns added.
“Many economists believe some portion of tariffs are passed onto consumers in the form of higher prices. A different Democratic candidate may have different trade and tariff policies than President Biden.”
5. Taxes Would Remain Unaffected for Now
Although Biden abruptly left the race, Rhett Stubbendeck, CEO at Leverage Planning, doesn’t believe there will be a significant change right away.
“It could stir up some uncertainty in the markets and tax policies. We might not see immediate changes, but it’s always good to stay alert. Political news can shake things up and we always advise clients to keep their tax strategies flexible to adapt to any sudden shifts.”
He added, with Harris now running, “This could lead to changes in tax policies. New leadership often brings new priorities, and these can impact tax brackets or deductions.”
6. Government Overspending Could Lead to a Big Tax Increase
Our national debt is currently almost $35 trillion, and that could mean a tax increase for Americans, no matter who is in office.
“One of the biggest issues either administration is going to have to tackle is overspending by the government,” said Eric Mangold, CWS Founder of Argosy Wealth Management. “As a nation, we spend way more than we take in revenues (which includes taxes and gross domestic product).”
Mangold said that programs like Medicare, Medicaid, and Social Security could be reduced, and taxes could be raised due to the government’s overspending.
“While this level of government spending is unprecedented, higher taxes, unfortunately, are not. In the 1950s, 1960s, and 1970s, the highest tax brackets sometimes touched 90%. Think of that: For some of the higher income earners, on some of their income, for every dollar they earned, 90 cents went to the government in taxes. Will we get back to those levels? It’s hard to say for sure, but raising taxes is a pretty easy way to tackle spending, unfortunately.”
Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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