On many measures, the economy today appears strong. Unemployment is near historic lows. Inflation has dropped from a post-pandemic high of 9% to 2.4%. The stock market has been touching new highs. And both interest rates and energy prices have been dropping, providing new life to the economy. Indeed, some indicators suggest we’re more likely in the middle phase of the business cycle versus the late phase which typically precedes a recession.
Yet many Americans are feeling discontent. A recent Gallup poll found a majority of Americans rank the state of the economy as their top concern, and nearly 45% characterize it as poor.1 Perhaps it’s no wonder: Every time people head to the grocery store for food or to a big box store for school supplies, or open a bill for common items like house or auto insurance, they can see costs going up—and their wallets feeling lighter.
“Consumers’ purchasing power since the start of the pandemic is 2.5% below where it would have been if pre-pandemic gains in purchasing power had been maintained,” says Collin Crownover, lead inflation analyst for Fidelity’s Asset Allocation Research Team. “This makes the average consumer feel worse off in real terms than they were before the pandemic.”
Can any policies proposed during this election cycle change that? Let’s take a look at the key proposals and the potential impact on your pocketbook.
The economy and markets
Economic growth lifts all boats. But the two parties and their candidates have proposed different strategies to get there. Former President Donald Trump has generally supported keeping taxes and regulation low while protecting American companies with tariffs. Vice President Kamala Harris has proposed providing more relief to small businesses and the middle class while raising taxes on corporations and the wealthiest.
But be cautious about making investment decisions based on your political outlook or the candidate’s campaign promises. Says Naveen Malwal, an institutional portfolio manager at Fidelity’s Strategic Advisers LLC, “I wouldn’t presume that either candidate’s campaign rhetoric on the economy will necessarily lead to policy changes, particularly in a sharply divided Congress.”
Although elections can make for short-term market volatility, Malwal notes there hasn’t typically been a meaningful shift in the economy or stock market performance based on election results: “In fact, the economy and stock market have grown on average under every different combination of presidential and congressional parties.”
Find out more in Viewpoints: Do elections make for volatile markets?
Taxes
Still, changes in policy can have a big impact on individuals’ wallets, particularly when it comes to tax policy. A key issue for the next administration will be the fate of certain provisions of the 2017 Tax Cuts and Jobs Act (TCJA), which are set to expire at the end of 2025.
Former President Trump has expressed support for extending all expiring tax cuts, which could mean keeping the top income tax rate at 37%, preserving a higher standard deduction, and extending a top capital gains rate of 20%. Trump has also voiced support for lifting the cap on mortgage interest deductions (now $750,000 of mortgage debt) and state and local tax (SALT) deductions (now $10,000) and eliminating taxes on Social Security benefits.
Vice President Kamala Harris has proposed extending lower income and capital gains tax rates for people earning $400,000 or less annually, but allowing the top income tax rate to revert to 39.6% for higher earners. She has also expressed support for a minimum 25% rate for those with wealth of $100 million or more. On the investment front, Harris has proposed increasing long-term capital gains rates and the net investment income tax rate to 28% and 5% respectively (33% total) for people making over $1 million in taxable income.
Both candidates support eliminating taxes on tips and increasing the Child Tax Credit. Harris has proposed increasing the credit up to $3,600 per child with an additional one-time $6,000 credit for newborns. Vice presidential nominee Senator JD Vance has proposed increasing it to $5,000.
On the corporate front, Trump has proposed decreasing the top rate to 15%, while Harris has proposed increasing it to 28%.
Find out more in Viewpoints: The 2024 election and your taxes
Of course, many of these proposals would add to the deficit, which is now running at about 7% of GDP, roughly double the pre-pandemic level. That may make passage challenging, particularly in a divided Congress.
Still, if you think you might be in a higher tax bracket in the coming year as a result of new or expiring legislation, now might be the time to consider tactics such as a Roth conversion, gifting, and charitable donations, which can lower the value of your estate.
Find out more in Viewpoints: Tax hikes may be coming
Consumer prices
The good news: Food inflation has dropped to an annualized 1.2% from a high of 9.4% in June 2021.2,3 The bad news: Grocery prices are still up 27% since the pandemic began in 2019.4 With every trip to the grocery store consumers can feel the impact of years of inflation.
Higher prices may be challenging to address with existing policy proposals. Campaign-trail proposals to increase tariffs could potentially increase inflation in the US. Proposals to lower food costs by penalizing companies found to be price-gouging might be difficult to implement.
Housing
With the 30-year fixed mortgage rate still more than 6% and supply tight, housing prices continue to rise. The median selling price for a home in the US was $440,000 as of the second quarter 2024. Meanwhile, rents increased 30% between 2019 and 2023, far outpacing wage increases.5 No wonder 8 out of 10 voters rank housing affordability as a critical issue, according to a recent poll by real estate company Redfin. Among younger voters, 91% say it is their top concern.6
A variety of new policies have been proposed to try to help address housing affordability. Harris has proposed a new $25,000 tax credit for first-time first-generation homebuyers (with a lower credit for other first-time homebuyers). She has also proposed a tax credit to homebuilders who sell starter homes. Trump has proposed reducing regulatory costs for homebuilders and opening up more federal land for housing construction.
Crownover says these proposals may have mixed impacts. Incentives to build new homes might help boost housing supply and improve affordability. However, a first-time homebuyers' tax credit might actually push prices up as first-time homebuyers would have more money to pay. And a combination of higher tariffs and reduced immigration could increase the cost of products imported for construction, and constrain the construction workforce.
In the end, the biggest relief may come from falling interest rates.
Lower mortgage rates—now down 1.75 percentage points for a 30-year fixed conforming loan from a high of 7.8% in late 2023—will help homebuyers.7 “Demand might pick up and it may make sense for homebuilders (who also benefit from lower interest rates) to build more homes,” Crownover says. “The reduction in mortgage rates might also unlock pent-up supply from some homeowners with low mortgage rates, potentially increasing inventory for first-time homebuyers.”
Health care
Another source of high expenses for Americans is health care. Sharp increases in health care premiums, and Medicare drug prices have given consumers a dose of sticker shock lately. Indeed, per person annual health care spending is expected to nearly double to $21,927 in the next few years, up from $14,423 today.8
Each party has put forward proposals that might impact the cost of health care in various ways. Harris has proposed increased subsidies for state-run health care exchanges. She also expressed support for expanding the number of prescription drugs eligible for price caps in Medicare Part D plans and reducing the “donut hole” that leaves seniors partially uncovered for out-of-pocket medical expenses. Trump has generally advocated for greater price transparency from providers, and for the availability of catastrophic coverage plans.
Energy
Energy prices have fallen in recent years. Still, they remain above 2022 levels, when the Ukraine War led to a spike in prices. “Though gasoline prices have come down since the levels at the peak of the war, they are still much higher than prior to 2022 and people remember those lower prices,” says Maurice FitzMaurice, manager of the Fidelity® Select Energy Portfolio (
Recent proposals from each party have focused on increasing energy supply from various sources. Trump has expressed support for boosting fossil fuel production with more drilling, fracking, and pipeline construction. Harris has expressed support for fracking in addition to subsidies for renewables and electric vehicles.
In the short term at least, FitzMaurice believes the bigger driver of energy prices is likely to be geopolitics: "Key OPEC producer Saudi Arabia aims to maintain high oil prices, and ongoing geopolitical tensions in the Middle East could lead to supply disruptions from some producers."
Create a long-term financial plan
While it’s important to be aware of potential policy changes, investors may want to adopt a plan that can help them navigate a variety of scenarios that may arise. Remember, a financial or tax professional can help you build a sensible plan that could help you weather a variety of economic situations during the current election cycle and beyond.