Each new presidential administration comes in with grand plans to change policies, better the nation, and ultimately do what they think is best for the American people. Wherever you fall on the political spectrum, a changeover in administration in the White House will likely have at least some impact on your personal finances, which can cause uncertainty or even fear for many of us.
Although no one can predict the future, here are 3 ways we think the Biden administration policies could impact the personal finances of many American families.
COVID-19 Stimulus Packages
President Biden has made it clear that he is in favor of more stimulus relief to help soften the economic blows of the COVID-19 pandemic. Just recently, Biden signed the $1.9 trillion American Rescue Plan Act of 2021, (1) which provides housing assistance to both renters and homeowners, extends key unemployment insurance programs through September 6, 2021, and provides funding for a third stimulus check for up to $1,400 per individual under certain income limits. It also expands the child tax credit for one year, provides more assistance to state, local, and tribal governments, and gives funds to schools to help them reopen safely.
The passing of this bill includes direct financial benefits if you fall under the income threshold to receive a stimulus payment. But since we can’t have our cake and eat it too, remember that this bill carries a hefty price tag, which could risk a spike in inflation, increase the already record-breaking national debt, and push up borrowing costs for consumers and businesses. (2) Without speculating too much, these fallout effects may have an eventual impact on costs of living and even possible increases in taxes.
Student Loans
President Biden continues to advocate for student loan forgiveness in the hopes of rebuilding middle-class borrowers, pushing for Congress to forgive $10,000 in student loans for all borrowers regardless of income level. If you carry student loan debt, this level of loan forgiveness could help to free up more of your income to pay off other debts, save for big-ticket purchases, increase your emergency savings, or put more money back into your local economy.
But student loan forgiveness doesn’t mean student loan lenders will simply go away (wouldn’t that be nice?). The government will take responsibility for each borrower’s $10,000, resulting in a cost of $377 billion. (3) This money will have to come from somewhere, likely from either taxes from individuals, taxes from businesses, or increasing the deficit.
While the March 2021 relief bill does not include student loan forgiveness, Biden will continue to push for this in the future. But there is a student loan tax provision in the bill that could make a significant difference if loans are forgiven down the road (or if you have a loan forgiven through other means). Normally, you are taxed on any forgiven student loan debt. So if you have $10,000 forgiven and are in the 20% federal tax bracket, you could pay an additional $2000 in taxes that year if the government decides to consider that forgiveness as “income.” But now, there will be no taxes on forgiven student loans through 2025. (4)
Taxes
Speaking of taxes, some Americans are worried the Biden administration will increase their taxes. Again, we can’t predict the future, but what we do know is that President Biden maintains he only wants to increase taxes on the wealthiest of Americans.
Now, if you’re a wealthy American making $400,000 a year or more, this may not be reassuring. After all, you’ve worked hard for your money and deserve to keep as much of it as you can. For now, President Biden may have a tough time raising taxes on the wealthy with the Senate so evenly split.
However, one tax to keep an eye on is capital gains tax. If your income exceeds $1,000,000, you may face a substantial increase in capital gains taxes, up to 40%. This increase would be unprecedented and, because of that, may still be unlikely. But given what we know about the President’s plans and values, understanding these future possibilities can help you strategize for different scenarios.
How We Can Help
The truth is, we’re in control of how we vote, but we’re not in control of government decisions once all is said and done. The best we can do is focus on what we can control and develop strategies to deal with whatever comes our way. If you want to optimize opportunities that are ideal for your situation, you need a financial expert on your side.
If you’re worried the new administration’s plans will negatively impact your personal finances, our financial services team at T.A. Holland & Co. can help you take advantage of tax-efficient investing, strategize charitable contributions, properly structure tax-loss harvesting, and so much more to keep you on the right track for financial security. To get started, reach out to us at info@taholland.com or 617-523-5656 to schedule a complimentary appointment so we can get to know each other.
About T.A. Holland & Co.
T.A. Holland & Co. was founded in Boston, Massachusetts, in 1920 and serves individuals and businesses throughout the country with their financial needs. We provide cutting-edge financial services with a broad array of solutions to help our clients grow and preserve their wealth. We have seen good and bad economic times. Throughout it all, T.A. Holland & Co. has thrived by always making the customer our number-one priority. We get to know you and understand your needs so we can provide you with the proper guidance and strategies. Our senior vice president, John Hellmuth, has been at the helm of T.A. Holland’s financial services since 1990, but he doesn’t do this job alone. He is joined by his two children, Lindsay Hellmuth and Thomas Hellmuth. As CERTIFIED FINANCIAL PLANNER™ practitioners, our financial services team has the knowledge and experience to help you solve your most pressing financial challenges. To learn more about how we can help you, visit our website and reach out to us to schedule a complimentary get-acquainted meeting.
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(1) https://www.cnbc.com/2021/03/11/biden-1point9-trillion-covid-relief-package-thursday-afternoon.html