The next president and your money
Christopher Halloran/Shutterstock.com
Donald Trump may already have had an impact on your money, just not in ways some had predicted.
Experts warned a Trump presidential election victory would cause the stock market to immediately plunge. Instead, a Trump rally set in with the Dow Jones Industrial Average up more than 8 percent since Election Day.
Predicting the long-term personal finance implications of a Trump presidency may prove just as difficult. We just don’t know how effective the businessman-turned-politician will be in converting his campaign pledges into reality.
But if put in motion, President Trump’s plans could save you — or cost you — many thousands of dollars.
With Republicans controlling both houses of Congress, Trump should be able to push through major policy initiatives – from tax relief to health care reform – that were central to his campaign.
That doesn’t mean lawmakers will merely rubber stamp the new president’s ideas. Trump has, in fact, adopted some positions, like paid maternity leave, that are at odds with GOP beliefs.
Here are six ways Trump’s presidency could impact your wallet.
RATE SEARCH: Refinance your mortgage today before interest rates rise.
Investments
GaudiLab/Shutterstock.com
Before the votes were cast, analysts generally predicted a Trump election could wreak havoc on your retirement accounts.
Citi, for example, predicted the S&P 500 would drop by 3 percent to 5 percent immediately if Trump were elected. That didn’t happen. The question is, why didn’t markets react as predicted?
Instead, the market has surged since Trump’s victory, with the S&P 500 on target to have its biggest post-election, pre-inauguration rise since President Clinton won re-election in 1996. That year, the market rallied 8.8 percent, according to MarketWatch.
Analysts, however, have decidedly mixed opinions on whether the rally will continue beyond Inauguration Day.
Some believe Trump’s pledge to slash taxes and regulations will push stock prices higher, while others sense the rally is coming to a close.
Some believe Trump’s pledge to slash taxes and regulations will push stock prices higher, while others sense the rally is coming to a close.
“You can’t sit on the sidelines as the Trump rally continues, but you have good reason to question its durability,” analysts at Pavilion Global Markets wrote. “The president-elect’s tax plan will do little to boost growth, and will largely benefit high earners, crimping consumption and dramatically eroding fiscal balances.”
Whether you think stocks will continue surging or a market correction is likely, investment experts say you should always take the long-term view when it comes to your retirement investments.
Do not let any market fluctuations in the aftermath of the election cause you to change that strategy.
RATE SEARCH: Find a safe investment today. Look to top CD rates from our partners.
Taxes
DragonImages/Shutterstock.com
Tax policy can boil down to this simple question: How much is this going to cost me?
Trump says he wants to cut taxes and simplify the tax code, in part by reducing the number of tax brackets to three from seven. The top tax rate would be 25 percent instead of today’s 39.6 percent.
His plans call for, among other things:
- Increasing the standard deduction from $6,300 to $15,000 for singles and from $12,600 to $30,000 for married couples filing jointly.
- Restricting itemized deductions at $100,000 for single filers and $200,000 for married couples.
- Eliminating the individual alternative minimum tax.
An analysis of Trump’s tax plan by the nonpartisan Tax Foundation found that after-tax incomes for all income brackets would increase by 0.8 percent. The wealthiest Americans would see their incomes surge by 10.2 percent to 16 percent, the foundation says.
But the plan would reduce federal revenue over the next decade by $2.6 to $3.9 trillion. That could lead to significantly higher deficits.
Meanwhile, the Tax Policy Center, run by the Urban Institute and the Brookings Institution, has a handy calculator that can estimate your own tax implications.
A married couple with two children — one under age 5 and one who is between 13 and 16 years old — could see a tax break depending on what they earn.
If that family has an income of $82,500, the Trump plan would cut taxes by $572. A similar family with a “very high” income of $894,200 would see tax liabilities decrease by $78,511 while the “highest” earners in the scenario, with an income of $4.6 million, would save an additional $277,903.
Children and families
TomsickovaTatyana/Shutterstock.com
A portion of Trump’s tax plan involves child tax credits and other savings for families with children.
He plans to make child care costs for up to four children deductible from adjustable gross income, capped at the average cost of child care within the taxpayer’s state. The deduction would be available for individuals who earn up to $250,000 annually and $500,000 for married couples filing jointly.
A family that earns $70,000 annually in the 12 percent tax bracket with $7,000 in child care expenses would save $840, according to Trump’s website. Lower-income families could earn up to $1,200 additional per year in spending rebates offered through the Earned Income Tax Credit.
Trump also proposes new savings accounts to be used for care of children or elderly parents that would allow both tax-deductible contributions and tax-free appreciation. The government would match half of the first $1,000 deposited annually by low-income parents.
New mothers (but not fathers) also would benefit, under a Trump proposal that calls for six weeks of paid maternity leave for women whose employers don’t offer a post-pregnancy benefit.
Some critics have questioned the income limits for the child care deduction, saying it favors wealthy families over poorer ones.
The New York Times, for example, calculated that “if the maximum deductible expense is $10,000, a middle-income family in the 15 percent bracket will save up to $1,500 on income taxes, but a wealthy family in the top bracket, 39.6 percent, can save up to $3,960.”
RATE SEARCH: Now is the time to put away money for college. Open a savings account today.
Income and jobs
DmitryKalinovsky/Shutterstock.com
Trump says he can add 25 million jobs over the next decade by revamping, tax, trade, energy and regulatory policies.
He would eliminate “some of our most intrusive regulations,” which cost the economy $2 trillion a year and reduces household wealth by $15,000, according to his campaign website. Trump also wants a moratorium on new regulations “that are not compelled by Congress or public safety.”
On trade, Trump says he will call for increased taxes and tariffs on China, which he says devalues its currency to gain an unfair advantage over the U.S. He also plans to withdraw from trade deals like the Trans-Pacific Partnership, which he says would harm U.S. workers.
To build and protect job opportunities, Trump also has proposed increased infrastructure spending and deporting millions of foreign workers who entered the country illegally.
Analysts, however, are not thrilled.
If fully implemented, the Trump jobs plan is projected to cause a decline of 3.4 million jobs over the next four years, according to Moody’s Analytics. With no policy changes, expected job growth would top 6 million.
The net effect, writes Moody’s Chief Economist Mark Zandi, would be relatively neutral, although the country’s debt load would increase significantly:
“For the typical American family, Mr. Trump’s policies will mean that their standard of living will effectively go nowhere, at least during his term in office. Real income per capita will be near $45,000 when he is sworn in, and it will be about the same when his term ends. Stock prices, which will get hammered early in his presidency given the weaker economy and higher interest rates, will make their way back and end his term about where they were when he took office. House prices will follow roughly the same path. It will be a difficult four years for the typical American family.”
Health care
MonkeyBusiness Images/Shutterstock.com
Trump has consistently derided the Affordable Care Act for being both expensive and bad insurance. Even before he takes office, Trump and the Republican-controlled Congress have begun discussions about repealing Obamacare.
”
“We have to get to business. Obamacare has been a catastrophic event,” Trump told the New York Times.
He has urged lawmakers to repeal the law and approve a GOP replacement “very quickly or simultaneously.” But Republicans have not staked out a plan a majority of lawmakers can agree on, meaning Trump’s demands for a quick vote on a replacement plan may not be met.
“It won’t be repeal and then two years later go in with another plan,” Trump said.
During the campaign, Trump outlined a plan that would:
His plan would:
- Repeal the ACA and eliminate the individual mandate.
- Allow health insurance policies to be sold across state lines as long as the plans comply with state requirements. This would drive insurance costs down by allowing for more competition, according to Trump’s website.
- Allow consumers to fully deduct health insurance premiums from their income taxes.
- Promote tax-free health savings accounts.
- Allow consumers to shop for prescription drugs in other countries.
An analysis of Trump’s plan by RAND Health, a health policy research division of the RAND Corp., found that fewer people would have insurance coverage after his plans are made law than are covered today, average costs would increase, as would the deficit.
“Trump’s ACA repeal and replacement options would make insurance coverage in the individual market more expensive on average, with some proposals resulting in low- and moderate-income families paying more than higher-income people,” the analysis found.
CARD SEARCH: Need a low-interest credit card? Let Bankrate help.
College
Monkey Business Images/Shutterstock.com
Making college more affordable had not been one of Trump’s key platform messages, but he offered an outline of a plan in the last months of the campaign to combat Hillary Clinton’s proposal.
Trump threatened to work with Congress to pull federal tax breaks from colleges that don’t lower tuition costs. He said universities should use their “multi-billion endowments” to make college more affordable.
“The students are choking on these loans,” Trump said in September at a rally in Aston, Pennsylvania. “They can’t pay them back. Before they start, they’re in trouble. And it’s something I hear more and more and it’s one of those things I hear more than anything else.”
Trump also called for a loan repayment plan that would cap borrower payments at 12.5 percent of their income and suggested student loan debt could be forgiven after 15 years. Similar plans under the Obama administration already exist.
