On January 20, 2017, President-elect Donald Trump will take office as the 45th President of the United States. Among all of his legislative proposals, you may be wondering how his presidency will affect your money. In this article, I lay out four main areas of America’s finances that Trump’s proposals may affect and discuss his specific plans.
Income Tax Changes
The first major financial change to expect is a reduction in income tax brackets. Trump has proposed reducing the income tax brackets from seven to three. The proposed tax brackets would be as follows:
- 12% for single filers making up to $37,500 and married-joint filers making up to $75,000
- 25% for single filers making up to $112,500 and married-joint filers making up to $250,000
- 33% for single filers making more than $112,500 and married-joint filers making more than $250,000
With Trump’s changes, some high-income earners will fall under a lower income tax bracket. For example, the marginal tax rate for a single person making $100,000 a year would drop from 28% to 25%. The marginal tax rate would also be capped at 33%, meaning that those making over $413,250 a year would experience a reduction in income tax as well.
There will be mixed outcomes for low-income workers. Those making less than $9,275 a year will experience an increase in income tax – from 10% to 12%. On the other hand, those making more than $9,275 but less than $37,650 will experience a decrease in income tax – from 15% to 12%.
There are currently several different repayment options for student loans. Under the income-based repayment plan, the outstanding balance will be forgiven if you haven’t repaid the entire loan within 20 or 25 years.
Trump plans to offer an improved income-based repayment plan: graduates pay 12.5% of their income for only 15 years before the outstanding balance is forgiven. He’s also pushing to reduce the number of repayment plan options to make the process easier to navigate. Given that the number of people using income-based repayment plans continues to increase, this modification could result in millions of dollars saved for college graduates.
The bigger issue here is college affordability. Trump has addressed this issue on his website, stating that one of his education visions is to:
“Ensure that the opportunity to attend a two or four-year college, or to pursue a trade or a skill set through vocational and technical education, will be easier to access, pay for, and finish.”
Though, he hasn’t laid out the details on how he plans to do this nor where he plans to get the funding.
Child Care Plan
Another pillar of Trump’s proposed changes is his child care plan. The three main parts of his child care plan are: guaranteed paid maternity leave, child care tax deductions, and the dependent care savings account.
Guaranteed paid maternity leave – Currently, employers must offer twelve weeks of unpaid, job-protected leave to new mothers. This is mandated by the Family and Medical Leave Act (FMLA). Not many employers go beyond that and offer paid maternity leave. Trump plans to change that by modifying unemployment insurance provisions to include paid maternity leave. For women whose employers don’t offer paid maternity leave, they can receive payment for up to six weeks after birth or adoption under unemployment insurance.
Child care tax deductions – Trump plans to allow parents to write-off child care expenses as deductions above-the-line. In this way, the deductions will apply whether or not the parents choose to itemize their tax returns. Any family making less than $500,000 per year ($250,000 if filing individually), is eligible. One highlight of this change is that stay-at-home parents will also qualify for the child care tax deductions. This gives families a little more financial flexibility in terms of how they choose to handle child care in their homes.
Dependent care savings account – In Trump’s child care plan, he proposes the creation of the dependent care savings account, a tax-favored savings account used for dependent care expenses. Dependents will be defined not only as children, but also as elderly parents and disabled spouses. The maximum contribution limit will be $2,000 per year. Unused money can carry over from year to year. Low-income families would receive a government match of up to $500 per year.
Given the high cost of child care in America, these provisions are much needed. The drawback is that the benefits of these provisions will only be seen if people actually take advantage of them. Whether new mothers will file for unemployment insurance to get the paid maternity leave and whether low-income families will actually contribute to a dependent care savings account are up for debate.
Trump released a four-page document outlining his healthcare reform plans. He plans to completely get rid of Obamacare. He argues that health insurance shouldn’t be mandatory – that an individual should be able to decide not to have health insurance without paying a penalty.
Trump plans to allow people to deduct health insurance premiums on their tax returns, which he hopes will result in additional tax savings.
With the elimination of Obamacare, Trump plans to permit interstate sales of health insurance policies. He argues that this will increase competition among providers and drive the cost down for policy holders.
Trump also plans to expand the eligibility for Health Savings Accounts (HSAs), allowing more families to contribute to this tax-advantaged account and save money indefinitely for medical expenses.
Of course, Trump will have to hash out the details of his healthcare reform even further if he hopes to successfully repeal Obamacare.
What do these changes mean for your money? It all depends on your individual or family circumstances. The reduction of income tax brackets may benefit or hurt you depending on your current level of income. If you have a large amount of student debt, you may be able to pay less in the long run with Trump’s proposed changes to the income-based repayment plan. If you have dependents, Trump’s comprehensive child care plan may have some attractive provisions for you. The results of repealing Obamacare are still unclear because we’re not certain how health insurance premiums will be affected.
The takeaway here is that Trump is planning a major overhaul in terms of America’s finances. It’s important to inform yourself of all the changes that may take place and prepare accordingly.
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