By Gail MarksJarvis
WWR Article Summary (tl;dr) Gail MarksJarvis provides a very clear outline on how President Elect Trump’s policies could affect you financially.
Look in your wallet. Do you see IOUs signed by Donald Trump, or did you merely imagine that he plopped them there?
Most of the Trump promises made during the campaign were big but vague. He promised to help all Americans prosper and to renew the American Dream. But what does that mean for your wallet? Often, ideas that sound good on the campaign trail dissipate or morph once they’ve made it through Congress.
And though Trump gets to work with a House and Senate controlled by Republicans, the ideas he trumpeted on the campaign trail are a political blend: His tax plan seems to come from the Republican playbook. His student loan relief plan sounds a lot like Obama’s, and his pledge to keep Social Security completely intact differs from Republicans itching to make cuts.
Here are some key issues for your wallet:
-Tax cuts. One of the clearest plans described by Trump during the campaign was his tax plan.
Reviews by independent think tanks say his plan would cut taxes for all income levels, but it’s bound to be controversial because most savings would go to the highest-income people and 20 percent of moderate-income people would face higher taxes.
In one example, a single parent earning $75,000 would face a tax increase of $2,440.
Trump would reduce the number of tax brackets, increase the standard deduction, hold the maximum rate for dividend and capital gains taxes at 20 percent, and get rid of federal estate taxes and the alternative minimum tax. He would limit deductions other than for charitable contributions and mortgage interest and cut the corporate tax rate to 15 percent.
Making this happen will be a challenge. The Tax Policy Center says the plan would cost the government $6 trillion over a decade as people pay less in taxes. Unless the government makes huge spending cuts, the tax break would end up increasing the national debt by nearly 80 percent of gross domestic product by 2036. Yet, Trump argues that tax cuts will spur businesses and individuals to spend more and spark the economy so more money would flow into the tax coffers.
-Student loans. Trump hasn’t spelled out his student loan plan as concretely as his tax plan, but in a speech he said that people with student loans shouldn’t have to pay more than 12.5 percent of their income toward student loan payments. And they shouldn’t have to make payments for more than 15 years.
Presumably that would mean that after 15 years, even if their loans weren’t paid off, the remainder would be forgiven. That sounds a lot like Obama’s current program of reducing student loan payments if the regular payments would be too high for the income a person earned. It’s called income-based repayment.
Trump also says he’s going to put pressure on colleges to reduce costs. Colleges get tax breaks from the government and Trump implied he could use them as a carrot or a stick. A popular study around college costs shows that many colleges could reduce prices for students if the institutions would devote more money from their endowments.
-Obamacare. Trump, like other Republicans, has vowed to repeal the Affordable Care Act, get rid of the requirement that everyone buy health insurance and start to build a new health insurance system. The current system, he said, has led to runaway costs, rationing care, high premiums and few choices. With about 20 million now covered by Obamacare, however, creating an alternative or getting the support needed from Congress won’t be immediate or easy.
Ultimately, Trump says he will retain requirements like making insurers cover pre-existing conditions, and he plans to bring health insurance costs down by generating more competition between insurance companies.
-Social Security and Medicare. Even though Trump said he wouldn’t make cuts in Social Security or Medicare, he will be pressured by Republicans pushing for change. The pressure could intensify as Trump and Congress try to make tax cuts that, as mentioned earlier, come with a $6 trillion price tag.
While Trump has promised no cuts in entitlements, the position is at odds with his campaign trail comment that government needs to get rid of its $19 trillion in debt.
New Jersey Gov. Chris Christie has suggested reducing benefits for future retirees earning $80,000 or more without Social Security. He also proposed eliminating Social Security for individuals making more than $200,000. House Speaker Paul Ryan wants to raise the retirement age and use vouchers to control Medicare costs.
ABOUT THE WRITER
Gail MarksJarvis is a personal finance columnist for the Chicago Tribune and author of “Saving for Retirement Without Living Like a Pauper or Winning the Lottery.”