Will the GOP tax plan make you more financially secure?
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You should be feeling great.
The stock market keeps hitting all-time highs, the unemployment rate is resting at a 17-year low and consumer confidence remains strong. Both the House and Senate passed huge tax overhauls.
And yet you’re anxious.
Employee satisfaction with their finances dropped dramatically over the past two years, according to a recent Willis Towers Watson survey, and is now at the lowest point since immediately after the financial crisis.
Nearly half of all employees worry about getting by day-to-day, while almost six in 10 are concerned about their future security. Half of all families endured a large financial shock over the past two years.
You might be looking to Congress’s expensive tax plans for aid. But should both chambers reconcile their bills, will your life get easier?
A little, maybe. But probably not.
Economic insecurity is a fact
Just 35 percent of workers are happy with their financial situation, according to Willis Towers Watson, compared to 48 percent two years ago.
At the same time, the unemployment rate is 4.1 percent, the lowest level since 2001, and the Dow Jones Industrial Average recently went above 24,000. Consumer confidence jumped last month, too, hitting a 17-year high.
So what’s going on?
Only 48 percent of Americans received a raise, or a better paying job, in the past year, according to a Bankrate survey. Average earnings for all Americans rose just 2.4 percent in October, slightly higher than inflation.
A lack of available housing is driving home and rental prices, and credit card debt has surpassed the trillion-dollar mark.
And folks are scared about the future. A sixth of workers have raided their 401(k)s to make up a cash shortfall, according to Willis Towers Watson, and less than half believe they’ll have enough money 25 years into their retirement.
This is one reason why slightly more than half of Americans are at risk at encountering a lower standard of living in retirement than they have now, according to Boston College’s National Retirement Risk Index.
Unemployment may be low, but angst is high.
Will your taxes rise or fall?
The tax bill will likely palliate your pain without curing it.
The Tax Policy Center estimates that the Senate bill would cut taxes for three-quarters of filers in 2019, resulting in nearly $2,000 in relief. An unfortunate seven percent of filers would see an average hike of $3,070.
The more you make, the better you stand to gain. Households with nearly $90,000 in income would see a $1,080 cut, while those making around $750,000 would take home an additional $53,000. By 2027, though, almost half of all Americans would pay more in taxes as the individual provisions are phased out. Congress is betting a future Congress will cut taxes again.
The Joint Committee on Taxation estimates that the $1.5 trillion bill will result in about $410 billion in increased revenue from growth. Is there a bonus in your future? Maybe, but keep in mind that economists doubt these projections.
Many companies are already sitting on record profits, and the economy is slowly gaining steam. Unless there’s a business case to increase wages, it’s unlikely you’ll get a lift.
Even without a raise, an extra grand is nothing to sneer at. Middle earners with credit card debt would be able to halve their I.O.U. But with college tuition and health care costs outpacing inflation, a little bit of tax relief without a major boost in earnings will likely do little to ease your bottom line.
Health insurance spending
Everyone has their own health insurance nightmare. An unforeseen calamity or a complicated surgical procedure could, at some point, rip a hole in your budget.
In fact, three in 10 households bore a significant medical expense, according to Willis Towers Watson. Will this bill make those people more secure? Not likely.
The Senate version of the tax reform calls for the repeal of the individual mandate that all citizens purchase health insurance. The move would result in 13 million fewer people with insurance by the end of 2027.
If you want to go without health insurance, and avoid paying the penalty, this is a win for you. However, one bit of bad luck could plunge you into a financial hole. If you plan to forgo health insurance, make sure you have at least 12 months of expenses saved in a high-yielding savings account.
If you’re looking to buy insurance on the Obamacare exchange, you may face higher premiums, and those who make too much for a government subsidy will see a significant costs.
The bill that passed the House called for the elimination of the medical expenses deduction. You need to spend 10 percent of your income on medical expenses to qualify, and only about 9 million people do.
But many of those are lower-to-middle income seniors who, according to the AARP, live on a fixed budget and face high out-of-pocket expenses. Republicans are betting that the nearly doubled standard deduction will make up the difference.
What should you do?
Unless you are among the 1 percent, or a stakeholder in an international corporation, the tax overhaul will likely only affect you at the margins, with diminishing returns overtime.
You may see a cut now, and a hike in a few years, while your circumstances have hardly changed.
So you can’t count on it to save your finances, which means the the old saws still apply. Increase your savings whenever possible, max out your 401(k) contributions, pay down your credit card debt and prioritize retirement over your kid’s college savings.
Despite a $1.5 trillion effort, life, including the bad bits, will go on much as it did before.