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Political Challenges and Fiscal Uncertainty: Government Shutdowns, Tax Reform, Social Security and the 2024 Elections

Jeff Bush’s expertise lies at the intersection of politics and policy. There may be no one better suited to help make sense of the inner workings of the legislative process and potential changes that could impact financial outcomes.


In mid-October, Jeff Bush, principal of The Washington Update, joined us for a discussion of potential changes in various government policies and programs that could impact our clients’ financial decisions. Yet the outbreak of war in Israel and Gaza, the ongoing war in Ukraine and uncertainty over political affairs in the U.S. have overshadowed these topics.

We acknowledge the profoundly troubling events in our world and offer this conversation to help understand the intricate web of economic and political developments still underway.

Listen to our interview with Jeff and hear his thoughts on a potential government shutdown, the sunsetting of current tax provisions, the prospects of Social Security reform, how the 2024 election is shaping up and more.

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Aired on October 19, 2023

Key Takeaways

Government Shutdown

The continuing resolution Congress passed with former House Speaker Kevin McCarthy moved the deadline for a government budget agreement to November 17—or risk a government shutdown.

“My best guess at this point is that we'll have an additional continuing resolution for a very short time, maybe just until early December, to finalize the details between the House and the Senate budget proposals. I think that's the most probable scenario at this point. But a new speaker will have a lot to say about that.”

Social Security

Individuals within 10 years of full retirement, age 57 years or older, should receive their full Social Security benefits, in Jeff’s view. He believes that the only change that might occur in the near term is a reduction in cost-of-living adjustments.

Congress will not likely address the program’s funding issues until 2029. The program will automatically move from an entitlement program to a pay-as-you-go program barring any legislative action. However, if either party sweeps the election in 2024, they may elevate Social Security reform as early as 2025, paired with tax reform.

“We'll know they're finally serious when they're willing to tweak all the variables of Social Security at the same time.”

Tax Code Changes

Current tax policies in place since the 2017 Tax Cuts and Jobs Act (TCJA) end with expiration of the act at the end of 2025. There was some discussion that Congress would enact key tax extenders at the end of this year, but that possibility may evaporate with the turmoil around the speakership vote—there’s simply not enough legislative days left in the year to get a lot done.

Going forward, a top demand of Senate Democrats is an increase in the child tax credit, the same demand they made in December of 2022. It did not go anywhere then, and the current Republican lawmakers are still against it. With no changes enacted, tax provisions revert back to pre-TCJA days, which neither party wants.

If no changes are made and the country simply goes back to provisions prior to the TCJA, capital gains rates won’t change. What does change is the relationship between marginal and capital gains rates. If the marginal rates could increase for you, consider your asset location—your mix between tax-advantaged, tax-free and taxable accounts—and what adjustments could help mitigate your tax burden.

It’s important to realize that the country’s fiscal situation is not tenable long term, in Jeff’s view. Congress will have to address the issues in the form of increased taxes and other revenues and/or decreased government spending. Or investors will address it by asking for higher interest rates for holding government debt, which the country can’t afford with $33 trillion of debt.

“So really, everything's setting up for a new tax bill debate in 2025.”

Diversifying Tax Exposure

Until we see results of the 2024 election, major policy changes are unlikely. But one aspect of your finances is in your control right now—diversifying the tax exposure of your retirement savings. Allocating assets among multiple investment accounts with different taxation provisions can help you keep more of what you earned even if the tax code changes.

“One of my biggest concerns for the average American is that 100% of their savings for retirement is in one place—a 401(k) or IRA (individual retirement account)—so they have one tax strategy when they retire. And whatever the IRS code is at that time will determine their retirement lifestyle.”

Political Landscape and the 2024 Elections

In the House, Jeff says the distribution of races in Republican and Democratic districts and new district maps in a number of states going into effect in 2024 give Democrats an edge. There are 18 Republicans sitting in Biden-won House districts, but there are only five Democrats sitting in Trump-won districts.

“Right now, I would say that Democrats certainly have a tailwind to taking back the majority [in the House] because they only have to win five seats—but I don't think it's a given at this point.”

In the Senate, significant political changes could occur in 2025. Three Democrats have races in states that Trump narrowly won, five Democrats are sitting in states that Biden barely won, Arizona’s sitting senator is now an independent with challengers on both sides, and Michigan is an open seat. In contrast, not one Republican is running in 2024 in a Biden-won state. All these factors generally make it easier for Republicans to win those races.

“The math just heavily favors the Republicans … and I think the Republicans will take back the majority of the Senate.”

Jeff Bush

Jeff Bush

Principal, The Washington Update

Jeff Bush is the principal of The Washington Update, the industry’s nonpartisan expert on all things Washington, and a 30-plus-year veteran of the financial industry.

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The views expressed in this presentation are the speaker’s own and not necessarily those of American Century Investments. This presentation is for general information only and is not intended to provide investment, tax or legal advice or recommendations for any particular situation or type of retirement plan. Please consult with a financial, tax or legal advisor on your own particular circumstances.

Jeff Bush and The Washington Update are not affiliated with American Century Investments.

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

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This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.

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