{{item.videoDuration}}
{{item.title}}
{{item.text}}
{{item.videoDuration}}
{{item.title}}
{{item.text}}
The current state of the US election
Swiss investors watch with anticipation as America decides who will be the next President of the United States. Also often referred to as the “Race to 270”, candidates compete against each other to earn at least 270 Electoral College votes to secure their nomination to the Presidency. These 270 Electoral College votes represent the majority that is needed of the total of 538 electoral votes.
As it currently stands, Swiss observers are watching yet another close Presidential race. With each passing poll we see both Harris and Trump trading spots for the top, making the determination of a clear winner quite difficult. And, while the polls show Harris currently leading with a projected 226 Electoral College votes versus Trump at 219, these statistics, and the 93 projected toss-up votes, could change any given week.
Pennsylvania as the Key Swing State
While predicting a winner can be difficult, swing states (states that generally lack clear loyalty to either candidate’s party) play the pivotal role in the election. By analyzing the polling of these states, we start to obtain a clearer picture of who will be sitting in the White House by next year.
Pennsylvania, one of the most populous of the swing states, is particularly important as it has supported the victor in the previous two elections, with narrow margins of tens of thousands of votes. Looking at the polls, Pennsylvania is expected to have yet another closely contested race in November with Harris currently leading Trump by less than a percent. Therefore, Pennsylvania, as well as Arizona, Nevada, and other swing states, will be the battleground where the outcome of the election is decided.
(Virginia has recently moved into play, and if Trump were to pull an upset there, he could afford to lose Pennsylvania and still win the Presidency.)
The current state of the Senate & House
Control of the Congressional Houses
The President, regardless of who it will be, needs the support of both the Senate and House of Representatives in order to pass the legislation and policies they desire. This year, we have a peculiar election as Democrats and Republicans are projected to trade control of the Senate and the House. With the houses of Congress divided, it will be difficult for either Harris or Trump to enact the changes they are campaigning on.
For the Senate, Democrats currently maintain control with a 51 to 49 majority, however, polls indicate that Republicans are projected to earn 51 seats vs Democrats at 48 (1 seat remains a toss-up).
As for the House, Republicans currently remain in control with a 220 to 211 majority. Looking at the polls, we also see that Republicans will earn 208 seats vs Democrats at 206 (21 seats still remain a toss-up). Polls also indicate that Democrats have a fair chance at securing a majority of these toss-up seats, thereby regaining control of the House.
Democrats & Republicans switching Senators in Montana & Wisconsin (and more)
This year, the battleground for Senate control is mostly playing out for Democratically held seats (Texas being the only likely state where Democrats are fighting to replace a Republican seat). The Democratic Senate seats most likely to flip this year will be in (in order of likelihood): West Virginia, Montana, Ohio, Michigan, Arizona, Nevada, Pennsylvania, Wisconsin, and Maryland.
Should some of these seats flip to the Republicans, they are likely to take control of the Senate.
Likely tax policy changes as a result of the election
In a Harris Presidency
While a Republican-controlled House or Senate generally would oppose Harris’ tax increase proposals, some tax increases could be adopted as part of a bipartisan agreement to address expiring Tax Cuts and Jobs Act (TCJA) provisions and avert significant tax increases. Unfortunately for Harris, even a Democratic-controlled Congress may not adopt all of her extensive tax increase proposals.
Some of Harris’ key business taxes, as well as capital gains and dividends taxes, include:
- Increase corporate income tax: 21% to 28%
- Increase global intangible low-taxed income tax: 10.5% to 21%
- Wealth Tax: Those with more than $100 million in wealth must pax at least 25% on a combination of their income and their unrealised capital gains.
- Increase marginal income rate: 37% to 44.6% (this total is in combination with increasing two Medicare surtaxes from 3.8% to 5%)
- Long-term capital gains: Tax long-term capital gains and qualified dividends at ordinary income tax rates for taxable income above $1 million
- Unrealised capital gains: Tax unrealised capital gains at death above a $5 million exemption ($10 million for joint filers)
- Carried interest: Tax carried interest as ordinary income
In a Trump Presidency
If Trump is elected President with a Republican-controlled Congress, House and Senate leaders plan to use budget reconciliation procedures to enact tax laws in 2025. However, divided party control of the houses of Congress makes reconciliation nearly impossible.
With no capital gains or dividends taxes yet proposed, Trump’s corporate tax policies run at a shorter list with his main proposal to lower corporate income tax from 21% to 15% (following the trend from when he lowered it from 35% to 21%).
Trump has also floated the idea of an “all tariff” policy in order to completely eliminate individual income tax. Currently, individual income tax rakes in 27 times more revenue than tariffs, so, Trump’s solution is to impose a universal baseline tariff on all US imports of 10-20% as well as a 60% tariff on all US imports from China.
Key tax provisions set to expire soon
Signed into law in 2018 by Trump, the TCJA overhauled the tax code with a wide range of policies. By the end of 2025, many of these tax provisions are set to expire or become more restrictive. The next President and Congress will therefore need to address these provisions and make a decision on whether they wish to extend them or allow them to expire. Should they be left to expire, individual taxpayers and businesses may see tax increases as rates will return to their original state as they were before Trump’s Presidency.
Renegotiation of the US – Switzerland double tax treaty
Switzerland is currently renegotiating its double tax treaty with the United States and the proposal should be brought to the respective legislative bodies for approval (or in the case of the US Senate: advice and consent) in the short – medium term. One key element is getting a potential 0% rate on dividend distributions provided certain conditions are met.
Under the US Constitution, a vote of two-thirds of Senators present is required to “advise and consent” on the ratification of a treaty by the President. The 2019 renegotiated Double Tax Treaty between the United States and Switzerland was consented to by a US Senate vote of 95-2, but this was only after one Senator’s eight-year hold on a “unanimous consent” vote.
Further renegotiations could take several more years to approve regardless of which party controls the Senate, but this timeframe ultimately comes down to the Majority Leader and the influence of whichever Senator places a hold on the treaty’s consideration, if any.
Why does this matter to Swiss and European investors?
US taxpayers or foreign entities with U.S. holdings could see significant changes depending on the outcome of the election. However, current tax proposals do not directly affect Swiss and European investors who have US investments that are unconnected to a US trade or business or real estate or otherwise have no US filing obligations. Swiss and European investors earning only capital gains (unrelated to real estate) or dividends and interest (unconnected to a trade or business) should not see a direct change in their tax leakage on their US investments regardless of who wins the election.
Nonetheless, now is a good time for Swiss and European investors to review their US investments, including structures and the types of income they are generating, to be prepared for any legislative and regulatory changes that may result regardless of who wins the Presidential race.
{{filterContent.facetedTitle}}
{{contentList.loadingText}}
{{contentList.loadingText}}