President-elect Joe Biden will take office amid a raging pandemic, nervous economy, simmering social unrest and a deeply divided country. When so many Americans are in trouble, how will the new administration’s efforts affect your financial well-being?
Whether the Biden administrative policies you may have heard about will improve or affect your financial condition depends on your income and other specific factors. However, the following economic policies proposed by the new president are most likely to have a significant impact on your paperback. Let’s take a closer look.
Tax reform is unlikely to happen from the start, although a new tax law may be proposed before the 2022 midterm elections while the Democrats retain control of both houses of Congress. According to the website, Biden’s tax policy would reverse many of the guidelines implemented by President Trump’s 2018 tax law. The biggest changes would shift the tax burden upwards and raise tax rates for wealthy households and businesses.
Since Congress has sole power to draft and pass laws, Biden’s proposals amount to a wish list and a guide to what he would be willing to enter into the law. Here are some highlights of the proposed Biden taxes and policies:
- Restoration of the highest marginal tax rate to 39.6%; it is now 37%.
- Taxation of investment income at the same rate as wages (currently between 0% and 20% for most investors, depending on various complex factors).
- Limit individual deductions claimed by applicants for high income tax to 28%.
- Higher tax rates on long-term investment income that track wage income rates are currently capped at 23.8%.
- Introduced a social security tax of 12.4% on income over $ 400,000. Currently, only income up to US $ 137,700 is subject to this tax.
Other tax proposals from Biden include an increase in child tax credits, an increase in the corporate tax rate (including a minimum tax of 15 percent on certain businesses that pay little or no tax), tax credits for home buyers and tenants, and an increase in taxes on inherited property and the elimination of certain tax breaks for real estate professionals.
Takeaway: Any new tax bill under Biden would most likely increase taxes on the wealthy and increased tax breaks for middle- to low-income Americans.
Biden unemployment and small business aid
The most recent extension of the federal COVID-related unemployment insurance benefits (UI) ends less than two months after Biden took office. However, there are plans to expand this further. The new administration has also proposed short-term UI programs that will allow employers to cut working hours and avoid layoffs while ensuring workers have enough income to make ends meet. These programs are known as “division of labor,” and more than half of all states have similar programs in place, including California.
The Biden government is also pushing for programs that will instantly create jobs for the unemployed and underemployed, including roles that help manage the COVID-19 crisis such as: B. Contact tracers. Another proposed job creation strategy is to invest more capital in training and spending on infrastructure and other industries such as education and clean energy. Additionally, the new government has pledged financial assistance to state, local, and tribal governments to help them support essential workforce.
Takeout: Look for enhancements to UI benefits and increased support for state and local government programs.
Biden on healthcare
Given the heated debate over the government’s role in health insurance, it is not clear how Biden will approach changes and additions to the Affordable Care Act (ACA). Still, access to health care is a major concern for the majority of Americans, as nearly a third of Americans have medical debt.
One of the Biden administration’s plans for health care is to reintroduce the public option that was removed from President Obama’s original proposal for the ACA. Similar to Medicare and cheaper than private insurance, the public option would also be offered by employers, many of whom are grappling with the high cost of health care for their workers.
Biden Healthcare’s stated goal is to cover at least 97 percent of all Americans. Suggested changes that could affect your healthcare costs include:
- Increase the value of tax credits to ensure Americans don’t spend more than 8.5% of their income on health care.
- People below 138% of the poverty line will automatically be included in the new public option.
- Excludes tariffs charged by network operators outside the network.
- Increase in competition between insurers by using the cartel power of the federal government (more competition often leads to lower consumer costs).
- Negotiating lower drug prices for Medicare beneficiaries.
Biden’s proposals for health care do not end there (according to his pre-inaugural government website) and include other proposals to reduce drug and procedure costs while ensuring that care providers are adequately compensated.
Takeaway: Most of the proposals would expand the ACA in some way, but since this is a contentious issue, it is unclear what Congress would approve.
Biden, student loan debt and access to higher education
Americans have more than $ 1.5 trillion With regard to student loan debt, the Biden government has expressed its willingness to consider some form of debt relief for student loans. President-elect Biden has voted in favor of a bill in the House of Representatives that would waive $ 10,000 in federal student loan debt for each recipient. The Biden Student Loan Suggestions also include:
- A freeze on payments and accrued interest for those earning less than $ 25,000.
- End taxes on debt for student loans issued.
- Extending student loan issuance to those who have historically attended black colleges and universities (HBCUs) or minority service institutions (MSIs).
- Revised the public credit program to allow borrowers to be eligible for credit within five years instead of the current 10 years.
Other measures to make college more affordable and accessible – especially for those affected by the racial and affluent gap – include exemptions from tuition fees for students from low-income families and doubling the value of Pell Grants.
Takeaway: The new administration is focused on some form of student loan provision and expanding access to higher education for lower-income students.
The Consumer Financial Protection Bureau (CFPB), which was established during the Obama administration, has fined more than $ 12 billion under its first director. However, it was far less aggressive under the Trump administration. For example, according to the Brookings Institution article linked here, the office collected a total of 10 $ 8 in fines in the second quarter of 2020.
The intended purpose of the CFPB was to serve as a consumer watchdog for abuse by financial institutions. By appointing a new director, ensuring adequate funding, and restoring its intended enforcement role under Biden, the CFPB will be better able to address new goals such as limiting surpluses from payday lenders and other presumed predatory institutions. In addition, the CFPB could investigate the tide of financial fraud that has increased in the wake of the COVID-19 crisis.
Aside from enforcement actions against bad actors, the Biden team also hopes to update the financial rules to make credit and other financial products more accessible to a wider range of Americans.
Takeaway: Further action by the CFBP could protect consumers from predatory or unfair actions by financial institutions.
How do you prepare your finances for the Biden administration?
Given the nature of the policy, you may not want to make drastic financial decisions before changes are implemented. If you are a high net worth individual, you can consolidate your estate plan (possibly transferring assets before changes in estate tax) or request that expected bonuses be paid out earlier than usual.
If you’re one of the many Americans who doesn’t fit into this category, here are some things to consider:
- State and local revenues fell during the COVID-19 crisis. So be prepared for possible increases in state income and local sales tax rates for retail businesses.
- If you have student loan debt, don’t do this accelerate Your repayment until the forgiveness guidelines become a little clearer.
- If you are involved in education, nursing, or other industries that have been selected for increased federal support, keep up to date with suggestions that could provide more job security and access to training.
- When you have consumer debt, increased financial enforcement should give you more confidence to seek professional help – when you decide you need it.
You should not take hasty steps before any of these guidelines have been implemented, or even in motion. However, it is worth thinking about what might be ahead of you and seeking advice if you think your finances could be affected. Every situation is different, but President-elect Biden’s economic policies can help brighten your finances in 2021 and beyond.
Take control of your finances regardless of who is in the White House
Learning how to deal with debt, money, and planning for your future doesn’t have to be that difficult, even if transitioning federal leadership causes uncertainty. It’s important to stay ahead of the curve when major economic policy changes emerge, but managing your personal finances is a lifelong endeavor. Our easy-to-follow debt guide will help you find the tools you need for a better financial future. Get started today by downloading our free How to Manage Debt to lead.