Firms Must Pressure Trump to Solve America's Fiscal Troubles
Owners of successful private businesses are breathing a collective sigh of relief over last week’s election results. Rather than being targeted for making more money than the Biden-Harris administration thinks is fair, or potentially facing the prospect of a newly created wealth tax regime, business owners generally see the incoming Trump administration as pro-business, anti-regulation, and anti-tax.
But they shouldn’t put their guard down: The congressional tax and budget battles of the next two years will determine whether we’re entering a golden age for business ownership or just temporarily fattening successful Americans for later deficit-driven tax slaughter.
That’s because a unified GOP-controlled federal government has a clear path to address runaway federal spending and deficits while ending the fiscal cliff/government shutdown/continuing resolution dysfunction that has plagued the US since 1996.
The GOP will have the opportunity to restore budgeting and spending discipline without singling out successful Americans for extreme financial pain. If they get it done, we could see shrinking deficits, restrained taxes, and an economic growth breakout.
If they don’t, midterm elections could slam the door on deficit-cutting hopes and potentially tee up Democrats for a return to power. At that point, the calls for wealth taxes and dramatically higher income, capital gains and wealth taxes on successful Americans will grow louder than ever.
What’s at stake for business owners? Taxes
The guts of our current tax framework were created while Trump was president by his 2017 Tax Cuts and Jobs Act. Its tax rates largely expire next year, and an analysis prepared earlier this year suggested that a typical high-income business owner would see a shocking 45% jump in their tax bill in 2026 when rates jumped back up.
Trump has expressed a desire to renew the terms of the Act, which affects rates on qualified business income (QBI) and allows business owners to claim bonus depreciation on investments they’ve made in their businesses. Such features obviously help drive business investment, job creation, and help manufacturing industries thrive.
But those economics are often lost on Democratic lawmakers, who see such programs as gifts to the wealthy.
The deficit monster is growing louder at the national door and requires attention. If the incoming GOP majority fails to deal with the problems of the budget process, tax policy, and overall economic strategy, resurgent Democrats will be happy to do it for them in subsequent years.
And likely with a far less genial attitude towards business owners.
Out of control deficits driving capital costs up and creating political pressure
The GOP majority will have a chance to push the U.S. away from the disastrous levels of peacetime deficit spending we’ve seen over the past fifteen years. Successfully doing so could prove the tonic to reduce interest rates dramatically over President-elect Trump’s term.
Failing to do so will create an atmosphere of high uncertainty and high interest rates. The political pressure will grow against Republicans, which in turn could put power back in Democratic hands. If that happens, the pitchforks would be out for businesses and high- income Americans.
That means business owners need to keep reminding the new congressional leadership that the time to act against the deficits – and to restore normal budgeting discipline and procedures to the federal government - is now.
Trade and tariff policies
President-elect Trump is famous for loving tariffs and hating trade deficits, and he campaigned successfully on his willingness to deploy them against friend and foe nations alike.
Trump also likes to make hyperbolic statements about policy to give himself negotiating power, and that could be what he’s doing here. While he’s clearly firm in his belief that the U.S. has been “ripped off” repeatedly by nations like China and Mexico, it’s not clear that his affection for tariffs would do much for U.S. businesses beyond interrupting their supply chains.
Having open access to foreign markets and a level trade regulation playing field would be nice for U.S. businesses, but business owners likely have more downside than upside on the trade policy front. It’s another area for vigilance and clear communication from businesses to government leaders.
Single party control is no guarantee of legislative success
The U.S. economy appears ready to rocket upward after years of COVID mismanagement and Biden administration overspending and regulatory missteps.
The success of President-elect Trump and Republican House and Senate candidates represents a clear mandate for an economy-first policy approach, while restraining the growth of government and the regulatory state.
But talking about what they’re going to do for businesses and for the economy is a whole lot easier than actually doing it. Having full control of the federal government brings a particular need for action to match the campaign rhetoric.
In recent years though, single party control of Congress and the presidency by either party seems to have led to frustration and failure more than to success. It’s incumbent on successful business people who may have supported and donated to GOP candidates to now make sure they’re taking the actions they promised instead of squabbling with each other over details and engaging in power struggles while losing sight of the big picture.
If business owners don’t make themselves heard now, they may make themselves targets later.