Election Implications: What's Next?

After the whirlwind that was the presidential campaigns, many business owners are now trying to discern what the economy and business markets will look like over the next four years. In a recent webinar, our guests – Steve Blake, Managing Director at CBIZ, and Marc Chandler, Chief Market Strategist at Bannockburn Global Forex – spoke with Oak Street Funding’s Market Research Analyst, Matt Staninger, about coming trends in interest rates, taxes, and the mergers and acquisitions environment. Read on for some of their insights.

→ Watch Now: Tax & Market Implications Post-Election

Overall impact on business climate

Donald Trump campaigned on a platform calling for tax cuts, tariffs, and immigration reform, along with a business climate favoring deregulation. He also signaled support for a more relaxed approach to antitrust issues.

If the incoming president is able to enact these broad policy aims – which is likely, considering the Republicans’ control of both the House and the Senate – the climate for business could be positive. Business taxes will tend to be lower, and mergers and acquisition (M&A) activity is likely to face less scrutiny than in past years.

A big question mark, however, is how tariffs would impact businesses. The goals of Trump’s tariff policy – assessing tariffs, payable to the federal government, on goods manufactured abroad – are to pressure manufacturers from other countries to move to a foreign direct investment (FDI) model instead of simply exporting their finished goods to the U.S. Under this model, which the U.S. has followed for half a century, more foreign manufacturers would set up factories in the U.S. and employ American workers.

Most economists agree that tariffs will raise prices for consumers, as the cost of the tariffs will be passed through to the final buyer. If this practice decreases sales demand, businesses could suffer, and the economy could weaken. Revenue from tariffs is supposed to offset reductions in tax revenue, but if the economy softens, tax revenue could drop even further, and government borrowing would have to increase. Overall, the effect Trump’s proposed tariffs will have on businesses and the economy is murky at best.

Effects on interest rates

The presidential election does not directly impact interest rates, as the Federal Reserve Board (the Fed) is independent of the government. As the Fed cut the Federal Funds Rate once before the election and once shortly after, questions are swirling over the likelihood and timing of additional cuts.

In September, the members of the Fed released their expectations for interest rate changes in the coming year. Their median expectation is for a total cut of 100 basis points over 2025. Currently, the federal funds rate (what banks charge each other, aka the “wholesale rate”) runs about 4.75%. The retail rate (what individuals and businesses pay) is close to 10%. As Marc Chandler stated in the webinar, “it’s a bit of the old trickle-down problem that you can cut the wholesale price, (but) it doesn’t really feed through to the retail sector for small businesses for quite some time.”

→ Listen Now: Building a Tax-Efficient Structure

Impact on taxes

A major pillar of Trump’s proposed economic policies is making the provisions of the 2017 Tax Cut and Jobs Act (TCJA) permanent. If enacted, this would reverse the scheduled sundowning of TCJA and promote lower business and personal taxes. Trump has pushed hard for a return to the 100% bonus depreciation provision of the 2017 law. With this provision, business owners could deduct as expenses 100% of the cost of many big-ticket items in the year they were purchased, rather than having to amortize them over several years. This deduction would decrease a business’s tax liability in the year the purchase was made.

Similarly, the president-elect’s policies would allow companies to deduct their research and development (R&D) expenses as they are incurred. The hope is that this effort would lower business taxes and promote innovation.

Trump has also called for reducing corporate income taxes from 21% to 20%, or even lower for companies that manufacture domestically. He has also signaled support for reducing the capital gains rate, although he has not provided a firm commitment on that issue

M&A environment

The outlook for M&A activity in 2025 looks promising. Lower rates for borrowing may give buyers more confidence to purchase other businesses or merge into larger firms. The expected easing of regulations and antitrust measures are likely to contribute to a robust M&A climate.

A reduced capital gains rate could spur some business owners to sell, as it would provide a more favorable tax situation for them as they realize the appreciation of their business.

What’s the best way forward?

Both Steve Blake and Marc Chandler agreed that to successfully manage a business in the coming environment, it’s important to focus on one’s key strengths and seek out advisors with appropriate expertise to fill in the gaps in one’s knowledge. Blake added that it’s important to think more long-term than businesses have in the past. “Most businesses do a one-year budget, one-year projections, maybe three years at most for some businesses. We're recommending to a lot of our clients now to do a minimum of five years.”

Blake went on to say, “We've seen in the last five years such volatility, not only in the marketplace but in the regulations and in the tax code, that you really have to be looking out farther than one to three years. And you've got to be able to plan for what if something changes.”

Both agreed that planning for change and preparing for unexpected events is key, especially for low-probability, high-impact events like cybersecurity breaches, pandemics, terrorist attacks, and the like. They recommend frequent stress-testing of a business, running it through various scenarios and making recovery plans. As Chandler put it, “Businesses have to build into their DNA resiliency in a world which is dynamic, changing.”