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Love him or hate him, Donald Trump will be our next president. In that capacity, he will have broad influence over many aspects of American life, including the economy. While I don’t believe any president has the ability to single-handedly control the direction of the economy, Trump is certainly in a position to exert a great deal of influence over our financial lives. His agenda will certainly be well received by a GOP-controlled Congress that shares many of his economic views.
Contrary to popular perception, modern presidents keep nearly two-thirds of their campaign promises. If President Trump maintains that performance, he will have a huge impact on your wallet.
Personal income tax. Trump has promised to lower income taxes and reduce the number of tax brackets from seven to three: 33 percent, 25 percent and 12 percent. He's also proposed a larger standard deduction. Trump says individuals making under $25,000 or couples making less than $50,000 should pay no federal income tax. According to the Tax Policy Center, the average family in America will see their effective or overall tax rate reduced by about 2 percent.
Americans falling in the middle 20 percent of income earners would see cuts in the 1.7 percent range, while the top 1 percent of earners would see cuts in the 6.5 percent range. Keep in mind Trump’s tax proposal is just that, a proposal. So there will clearly be modifications to this plan as Congress hammers out the details. But from a bigger picture perspective, most Americans should see some sort of net take-home income benefit.
And tax cuts for the vast majority of the population are a welcome change for most families. The only issue with this, also according to the Tax Policy Center, will be more than $6 trillion less in revenue for the government, exacerbating an already large deficit. What economists can’t agree on are the economically stimulative impacts of lower taxes. If the economy ends up growing at a 4 percent clip vs. the current 2 percent rate, the larger U.S. economic pie will adjust overall tax receipts, potentially making up for the projected shortfall.
With so many cross currents manifesting at the same time, only time will tell if a lower tax, stronger economic growth plan will play out. As a business owner myself, I welcome this positive uncertainty about taxes and am optimistic about the overall economic outcome.
Estate tax. Under current law, when someone dies with an estate in excess of $5.45 million, the estate essentially pays a 40 percent tax on the excess. Trump would totally eliminate the tax.
Health insurance costs. Trump and GOP lawmakers have vowed to dismantle Obamacare. While Trump has said he doesn't want the 20 million previously uninsured Obamacare users to lose coverage, it's not clear what alternative will be offered. The soaring cost of policies purchased on the Obamacare exchanges are clearly not sustainable and must be addressed by the new administration.
Social Security. Like every smart politician, Trump has repeatedly stated his support for Social Security. He opposes raising the normal or "full retirement age," which currently stands between ages 66 and 67 (depending on the year you were born). However, many experts believe that may be necessary if Social Security is to remain viable for the next several decades. Even GOP congressional leaders are open to discussing an age hike.
Consumer prices. Trump famously opposes such trade deals as NAFTA and the proposed TPP. He argues the agreements were poorly negotiated and have resulted in U.S. manufacturing jobs moving overseas. True. But NAFTA is also the reason you can buy your kid an Iron Man T-shirt at Old Navy for $9. Or a 6-foot artificial Christmas tree for $22 at Target.
If Trump succeeds in undoing key trade deals and imposing the tariffs he’s discussed, there would likely be a noticeable increase in consumer product prices.
Jobs. Trump contends that undoing NAFTA and similar deals will bring manufacturing jobs back to the U.S. Maybe. But companies would have to be given proper incentives to set up shop in the States — and to hire human workers instead of just automating their factories.
The president-elect has also been outspoken about the disrepair of our infrastructure and his desire to update it. The real obstacle here will be the potentially stingy Republican Congress, which may not want to allocate all the necessary billions. If the lawmakers come up with the money, it could create thousands of construction and allied jobs.
Stock winners. Trump's victory sent banking and financial stocks soaring based on Trump's vow to eliminate the regulations imposed by the Dodd-Frank Act in the wake of the Great Recession. Pharmaceutical stocks are up, too, primarily because of who lost the election. Hillary Clinton had expressed support for more price regulation of drugs.
Defense stocks are on the rise, driven by Trump’s hawkish campaign talk. Trump’s desire to rebuild roads, bridges and airports has construction-related stocks on the move, too.
Child care. The president-elect has proposed several ideas for reducing the sometimes-crushing financial burden. Among them: increasing the amount of child care expenses that many parents could deduct from their taxes, and creating tax-deferred child care savings accounts. Low-income parents who set up such accounts would receive a $500 match from the government when they contribute their first $1,000.
Wes Moss has been the host of “Money Matters” on News 95.5 and AM 750 WSB in Atlanta for more than seven years now, and he does a live show from 9-11 a.m. Sundays. He is the chief investment strategist for Atlanta-based Capital Investment Advisors. For more information, go to wesmoss.com.
