What To Expect From A Trump Second Term—Taxes
With the Tax Cuts and Jobs Act of 2017 (TCJA), the Trump administration lowered the corporate tax rate, small business tax rates and rates for individual taxpayers, which had a positive impact on consumer spending and corporate profits, and helped support markets. We generally would expect more of the same in a potential second term for Trump.

Business Taxes:
• No increases on the horizon. Given the economic climate of a post-Covid-19 lockdown world, there appear to be no real prospects that a Trump administration would consider rolling back any of the tax cuts it has implemented. The clarity that Trump’s reelection would bring to the issue of tax rates could encourage businesses to make plans for the future and allow time for them to reap the expected productivity benefits from capital investments. A second Trump administration likely would continue to promote a business-friendly, low-tax environment, allowing businesses some leeway to get back on their feet after the impacts of Covid-19. This is true for small businesses in particular—they may not be in the S&P 500, but they’re still the heart and soul of the economy.

• Action required to stop rollbacks. While most of the cuts to corporate taxes passed in the TCJA were permanent, some smaller areas of the tax cuts will phase down or expire during the next administration. Action will be needed by the sitting president to extend these areas, which include accelerated deductions for research and development costs and full expensing for short-lived business investments.

• “End our reliance on China.” Trump’s agenda includes a bid to use taxes to promote reducing the U.S. economy’s reliance on China through a “Made in America” tax credit—credits for companies that bring jobs back to the United States—and allowing 100% expensing for certain industries like pharmaceuticals and robotics that bring manufacturing back to the United States.

• Expanding “Opportunity Zones.” Created as part of the TCJA, opportunity zones were designed to bring investment to economically distressed parts of the United States through capital gains tax relief.

Personal Taxes:
Unspecified individual income tax cuts appear to be on the agenda, but there are no further details beyond “cut taxes to boost take-home pay” that is mentioned in Trump’s 2020 campaign agenda. Trump seems likely to address the fact that the temporary individual tax cuts, the increase to the standard deduction, and expanded child tax credit that were implemented as part of the TCJA will all expire in 2026.

What To Expect From A Trump Second Term—(De) Regulation
Deregulation has been a priority for the Trump administration, particularly in the financial services and energy sectors, and one that we fully expect to continue in a potential second term. However, the impact of deregulation has not been reflected in relative sector performance in the S&P 500. That doesn’t mean deregulation wasn’t economically supportive—only that the policy impact was overwhelmed by broader economic forces.

• Small business implications. Increased regulation tends to be more damaging for small businesses than the large publicly traded companies that make up major stock indexes. In fact, large companies sometimes benefit from regulations at the expense of small companies because of their ability to scale their regulatory response. Small business confidence picked up substantially with Trump’s election, according to the National Federation of Independent Business’ Small Business Optimism Index. This measure had been increasing since the financial crisis in 2008–09, but immediately following Trump’s election, it jumped to multi-decade highs and maintained those levels until the pandemic hit. Whether Trump can inspire a recovery to previous levels will be a stern test in a second term that’s still likely to be dominated by Covid-19 and the devastating effects that it has had, especially on small businesses.

• Immigration policy. This has been an area where the Trump administration has increased regulatory costs, which are likely to continue into a second term. Stricter polices and enforcement have reduced labor flexibility for businesses and shrunk the available labor pool, especially for specialized skills. A new campaign pledge to prohibit American companies from replacing U.S. citizens with lower-cost international workers may exacerbate this.

• Energy regulation. Support for energy companies and specifically fossil fuels appears to be an ongoing objective for Trump, and he has pledged to “Continue Deregulatory Agenda for Energy Independence” under the aim of creating jobs. Most companies in this sector, excluding those in renewable energy, will likely benefit from a Trump victory.

• Health care. As mentioned in last week’s commentary, health care receives a lot of attention during campaign seasons because it is very policy-sensitive and, of course, widely used. In this area, Trump versus Biden may be a push. While not going quite as far as Biden, Trump has included policy pledges to lower health insurance premiums, end surprise billing, cover all pre-existing conditions and lower drug prices. We would not expect a “Medicare For All” policy under any political scenario, though a Trump victory would take an expansion of the Affordable Care Act off the table.