The shift away from a Trump-Pence administration to a Biden-Harris administration paves the way for plenty of change, including changes to your personal financial situation. Whether you are a pre-retiree or already retired in Illinois, you should have an idea as to how the shift in power will affect your financial situation. Let’s take a quick look at what the executive branch transition might mean for your financial picture.
A major plan for Biden’s first 100 days in office is assistance with COVID-19. Many of his proposals will affect Americans with modified adjusted gross income under $200,000 (individual) or $400,000 (married filing jointly). To start, it is likely that an additional $1,400 stimulus payment will be issued, if your income allows you to qualify. Biden also proposes increasing unemployment benefits; vaccination expansion; and financial assistance for small businesses.
Other highlights of his proposal include an expansion of the Earned Income Tax Credit (EITC) to $1,500 for adults without children. Additionally, the Child Tax Credit (CTC) would be increased from $2,000 to $3,000 for each child under 17, and $3,600 for each child under age 6. This type of credit is refundable even if you do not owe taxes. Furthermore, Biden is promising first-time homebuyer tax credits along with student debt help.
The Biden-Harris administration plans on raising taxes on the wealthy. This additional revenue may lead to short-term government spending increases and could help with longer-term debt repayment. Biden’s tax policy website page states that tax rates will likely be hiked on incomes of $400,000 or more, increasing the top marginal tax bracket from 37% to 39.6%. He has also proposed increasing payroll taxes for Social Security for those individuals.
Furthermore, Biden is anticipated to propose that large corporations will also pay more in taxes, increasing the corporate tax rate from 21% to 28%. Higher corporate tax rates can potentially weigh down stocks of publicly traded companies.
The Biden-Harris administration insists it will seal offshore loopholes by increasing the minimum tax on US Companies’ foreign earnings. A tax penalty could be implemented for companies that send jobs abroad only to sell the products made right back to Americans.
Though Biden has made it clear he wants to restrict tax hikes to only the wealthiest Americans, that might not turn out to be the case. Shortfalls stemming from the coronavirus pandemic will likely lead to the consideration of tax hikes across the board. It is quite possible that states and municipalities could increase taxes on wages, investment earnings, property, and inheritances. Be sure to meet with a CERTIFIED FINANCIAL PLANNER™ Professional in the Libertyville, IL area to ensure you are on the right track in terms of tax mitigation strategies.
Biden’s Impact on Retirement
Biden’s campaign retirement proposals were to alter tax incentives to benefit low-wage earners, heighten the number of individuals who enroll in retirement accounts, and provide tax credits of thousands of dollars for caregivers who look after their parents or spouse.
Biden also promised to lower the Medicare eligibility age to 60 from 65. The President-elect even plans to hike Social Security benefits for impoverished Americans by raising taxes on those who earn significantly more than their peers.
Biden’s Impact on Estate Planning
For very wealthy individuals, it has been proposed that the estate tax exemption may decline under the Biden administration. Currently, any individual can pass on $11.58 million to an heir without estate tax. Biden’s administration is proposing decreasing this by approximately 50% to around $5 or $6 million per person.
Additionally, the administration has proposed repealing the “step-up in basis” rule. Today, when an individual dies with low basis, highly appreciated assets, heirs receive an increase in the cost basis to the fair market value. The Biden administration has proposed repealing this rule and would cause the low-cost basis to carry over to heirs.
Biden’s Stance on Social Security
It has been widely reported that the Social Security trust fund is poised to run out of money within a decade or two. The reduction in the workforce due to the pandemic has made matters worse, shrinking the amount of Social Security taxes collected. The problem is compounded by our aging and long-living population. It is quite possible that Social Security will be insolvent within the next couple of decades unless Biden or a future administration takes action.
Biden insists employers should pay the 12.4% OASDI insurance on high-income wages. (OASDI is an acronym short for old-age, survivors, and disability insurance). However, aside from this solution, Biden is not suggesting tax cuts, means-testing, or other potentially radical solutions. However, Biden has suggested expanding Social Security in more subtle ways such as providing the country’s oldest individuals with a higher benefit if they made payments across a minimum of two decades.
Biden also wants to base cost-of-living adjustments on the Consumer Price Index for the elderly. If Biden has his way, benefit amounts for survivors and widowed spouses will be hiked by 20% each month. Biden has discussed providing $5,000 worth of tax credits to caregivers who provide care for an elderly parent or spouse.
The President-elect has also dangled the idea of providing a financial incentive to small business owners to form retirement accounts so more people can enroll in retirement plans. Biden has even discussed altering 401(k) retirement account tax incentives to make deductions of high and low-income workers more equal. Your CERTIFIED FINANCIAL PLANNER™ Professional in Illinois can help you plan for retirement with such potential alterations to Social Security in mind.
Will Biden Be Able to Accomplish this Agenda?
To the surprise of many, the Democrats do have a slight edge in both houses of Congress. Because both Georgia Senate seats transferred to Democrats, the Senate is now split 50/50, with Vice President Kamala Harris casting the tie-breaking vote. Although Democrats do have an advantage, the Biden-Harris administration will want to work with Republicans on policy matters, as their support will be needed to pass tax laws. The administration is sensitive to the present tumult and is unlikely to pass tax legislation immediately.
In addition, Biden’s top priority for 2021 remains relief from the Coronavirus pandemic and national healing from very divisive political events of recent. The administration needs to decide if they wish to use reconciliation, which requires the support of a simple majority of lawmakers, which can be used sparingly each year. Should Biden wish to pass laws the traditional way, he will need 10 Republicans’ support
However, as Donald Trump has proven during the past four years, it is possible to make meaningful society-wide changes through executive action. As the chief executive, Biden will be empowered to sign executive mandates that alter the language of laws, ultimately making a meaningful impact on your personal financial situation. If you are concerned that you will not be able to retire as planned or that you might run out of money during your retirement, contact Prism Planning Partners.
At Prism Planning Partners, we are CERTIFIED FINANCIAL PLANNER ™️ Professionals committed to facilitating important questions so that we can help you explore all of your opportunities. We offer a broad array of financial planning and consulting services for our clients-including retirement, investment, and estate planning.
Contact us today and let us illuminate your possibilities!