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Economic Pulse: BIA’s Monthly Quick Take for August 2023

by | Aug 28, 2023 | BIA, Blog, Economic Pulse, Political Advertising

With the first Republican Primary debate happening last week, there is no denying that the 2024 Presidential Election Cycle is upon us.  While the actual election isn’t scheduled for more than 14 months from now, it’s not too early to consider the implications this election will have on the economy and, by extension, Local Advertising spending. 

Looking at the fiscal plans of the current Biden Administration and the Republican candidates, we can see significant variations in proposed policies that will shape the future look and direction of the US economy.  Examining these differences now can help us prepare for whatever path forward the voters ultimately choose in November 2024.  So, let’s dive in and see where the Democrats and Republican candidates stand on what I believe are the two most important issues affecting the US Economy and the future of Local Advertising spend: Taxes and Banking. 

First, let’s look at taxes.  In 2017, the Tax Cut and Jobs Act (TCJA) was passed by the Trump administration that set in place four major changes:

  • Lowered the tax rate for top income brackets
  • Created tax breaks for pass thru companies such as LLCs and Partnerships
  • Significantly lowered the Alternative Minimum Tax (AMT), which is designed to ensure people with high incomes pay at least some taxes
  • Lowered taxes on inherited wealth

This tax policy benefited everyone by decreasing the average amount paid by all tax payers.  That being said, the average taxpayer in the lowest quintile saw a 0.4% decrease in their average Federal tax rate while the top quintile saw a 2.2% decrease in their average Federal tax rate thereby immediately benefiting higher income people more than lower income people. 

Most of the Republican candidates support the TCJA which is set to sunset most of the tax reforms by the end of 2025, if not extended.  Trump says he would extend the cuts through 2033.  Mike Pence, Nikki Haley, Tim Scott and Chris Christie all say they support this tax policy and will likely extend the act, too.  Ron DeSantis has gone even further to say he will eliminate the Internal Revenue Service completely and lower tax rates even more than the TCJA does.

Fundamentally, Republican candidates are focused on cutting taxes for everyone, and especially for businesses and for wealthy people with the theory being this will allow business to grow more, hire more people, and spend more on investments while consumers will have more money to spend on goods and services, too. 

Democrats don’t agree and are working on a policy that would reform and reverse many of the changes made by the TCJA with a focus on taxing wealth and work comparably.  The four major components of the Democratic tax plan are:

  • Increase tax rate for the wealthy and high income earners back to 39.6% (currently 37% due to the TCJA)
  • Equalize tax rates on capital income and work for the wealthy (currently capital gains are taxed at a much lower rate than income from work)
  • Tax income on unrealized gains closing loopholes that help avoid taxes on appreciated investments and inheritances
  • Eliminate the pass-thru business protection so that income is taxed at a consistent rate as other investments

At the end of the day, both parties want to stimulate spending and economic activity.  Republicans believe that putting money in the hands of businesses will spur more investment, create more jobs and help consumers.  Democrats want to put the money in the hands of the consumers to encourage more spending and small business launches. 

In terms of Banking, it’s been a rough year for that industry and candidates don’t necessarily agree on who is to blame. 

Most Republicans say they do not agree with Fed Chairman Jerome Powell’s handing of the economy over the last few years – especially the high inflation rates and bank failures.  Trump, Haley and Scott have all said they would not reappoint Powell as Fed Chair in 2026.  DeSantis has said he would look to oust Powell before his term ends.  Pence has said he wants to eliminate the Fed’s focus on employment and have them focus on inflation only, going forward, and that he would not reappoint Powell in 2026.  Only Christie has said he would keep Powell, but he has also criticized the Fed for not moving faster to fight inflation. 

On the flip side, the Democrats are far less likely to move away from Powell and, if they did, their new nominee would probably have similar policies to the ones employed currently by the Fed.  Therefore, if the Republicans win, we can expect to see significant changes at the Fed which will likely result in more business-friendly policies and, most importantly, lower interest rates.  That would stimulate advertising spending immediately by many sectors including Auto and Real Estate. 

No matter what the American people decide in November 2024, Local Advertising spending will be affected.  In general, I believe that if a Republican wins the White House in 2024, that will mean a significant bump in Local Advertising spending heading into 2025 with businesses feeling more confident about their tax situation and their ability to spend, invest and grow. 

If the Democrats keep the White House in 2024, I believe that will signal a more tepid Local Advertising landscape for 2025 as it will take time for these economic policies to work their way through the system until consumers feel their wallets getting heavier which could mean 1-3 years before they significantly adjust spending levels.  Therefore, the change in Local Advertising spending is likely to be positive, but much less of a noticeable uptick in 2025 and more of a gradual lift starting in late 2025 through 2027. 

No matter what happens, this election cycle is already seeing Political spending on Local Advertising media in significant markets and that will not stop until the election is over in November of 2024. 

Where does Local Advertising go from there?  I can’t answer that today, but keep checking in with this blog and I promise we will help you navigate as the future unfolds in front of us!