5 Ways A Donald Trump Presidency Could Impact Your Money
How a Donald Trump Presidency Could Affect Your Wallet
The Donald Trump Presidency begins next week, and it could have a big impact on your money.
The President-elect has talked about everything from tax reform to ending Obamacare. And given Republicans now have full control of the House and Senate, campaign promises are likely to become reality.
Of course, there may be changes around the edges. Bills could be modified to win over Republican allies. They do indicate, though, what we’ll likely see over the next few years.
Here are five ways a Donald Trump Presidency could impact your wallet:
1. Lower Taxes
You could probably sum up a Donald Trump presidency in two words: tax cuts. Trump wants to simplify the tax schedule, aiming for three income brackets (12%, 25%, and 33%). This would be down from the six tax tiers in place right now. (Source: “What Trump’s victory means for you and your taxes,” MarketWatch, November 12, 2016.)
The plan means most Americans will pay less in taxes. According to the nonpartisan Tax Policy Center, more than half of the savings from Trump’s tax plan would go to the top one percent of income earners. Much of this is because wealthy households would pay a top marginal rate of 33% instead of the current 39.6%. (Source: “An Analysis of Donald Trump’s Revised Tax Plan,” Tax Policy Center, October 18, 2016.)
2. Lower Home Prices
Homeowners could lose in any new tax plan. GOP leaders have proposed curtailing the mortgage interest deduction. If given the greenlight, it could be bad news for house prices.
Right now, homeowners who itemize their taxes can deduct interest paid on mortgage debt. That would stay the same under the GOP’s latest tax plan, which was rolled out last summer. House Speaker Paul Ryan (R), however, has suggested roughly doubling the standard deduction. The change would render the mortgage interest deduction basically useless for millions of families. (Source: “Our Vision for a Confident America,” A Better Way, June 24, 2016.)
The logic behind the proposal is to reduce paperwork come tax time. But as a side effect, the tax advantage of having a mortgage would disappear. Because real estate will net you less in tax savings, homeownership will be less appealing over renting.
How far home prices could fall is unclear. We’re certainly not talking about a repeat of 2008. Based on estimates by the Federal Reserve, ending the mortgage interest deduction entirely could lower home values by about seven percent nationwide. (Source: “Do Mortgage Subsidies Help or Hurt Borrowers?,” Board of Governors of the Federal Reserve System, October 5, 2016.)
3. Higher Interest Rates
Trump has proposed a big spending plan to jump-start the economy. His business track record also shows an appetite for debt financing. That one-two combination, many experts believe, could led to higher interest rates.
Savers are main winners. Retirees could start to see higher yields on certificates of deposit, bank accounts, and money market funds. Bond prices, though, could take a hit, given older notes with low coupons will become less attractive.
On the flip side, borrowers will feel the pinch. Inflation fears have sent mortgage rates soaring. We could also start to see higher rates on everything from car payments to credit cards to student loans.
4. Social Security
Social security was never a big campaign issue, but that could change in the New Year.
Last month, Congressman Sam Johnson (R) published a plan to close the program’s funding gap. He proposes raising the retirement age, cutting cost-of-living adjustments, and slashing benefits for most Americans. To make the bill easier to pass, Johnson also wants to end income taxes on benefits and give more money to low-income recipients. (Source: “Sam Johnson Unveils Plan to Permanently Save Social Security,” Congressman Sam Johnson web site, December 8, 2016.)
Any bill, of course, is a long way from becoming law. Trump promised to not cut benefits during the campaign, though he has made no comments recently. The question now is if he will keep his word or fold to his fellow Republicans.
5. End of Obamacare
Trump has been vocal on his plans to repeal Obamacare. What he will put in its place, however, remains to be seen.
One solution could be the expansion of health savings accounts (HSAs). Contributions to HSAs are tax-deductible and funds can be invested tax-free. House leaders also want to boost competition among health insurers, which could be done by allowing Americans to buy insurance across states lines. (Source: “Health savings accounts may flourish under Trump,” CNBC, November 16, 2016.)
Early retirees should take note. The end of Obamacare could make coverage more expensive in the years before Medicare begins at age 65. Critics also worry those with preexisting conditions could be barred from buying health insurance.