Clinton vs. Trump: How the next president could impact your money
There's little doubt that the upcoming presidential election will be one of the most-watched and hotly anticipated in a long time. Between the mudslinging and mea culpas (or lack thereof), it's easy to forget that there are, you know, actual issues at stake.
But with only a few weeks left until you cast your ballot, it's important to go beneath the tabloid-like headlines and take stock of where the candidates stand on policies that could affect you and your family. After all, Democratic nominee Hillary Clinton and Republican nominee Donald Trump are so divergent in their political beliefs that your money decisions could be influenced very differently depending on who ends up in the Oval Office.
So to help you feel better-informed before you hit the polls, we've put together a cheat sheet that helps boil down their stances on five of the biggest issues that could impact your wallet, from taxes to childcare, and asked pundits to weigh in.
What Trump Wants: To simplify the math and cut taxes across the board by streamlining the number of personal income tax brackets from the current seven to just three. For married couples filing jointly, the brackets would be: 12% for those earning less than $75,000; 25% for those earning more than $75,000 but less than $225,000; and 33% for those earning more than $225,000. (The income thresholds for single filers would be half of these amounts.)
Trump also wants to raise the standard deduction for single filers and married taxpayers filing jointly to a whopping $15,000 and $30,000, respectively. (By comparison, 2016 standard deductions are $6,300 and $12,600.) Personal exemptions would be eliminated altogether, as would the head-of-household filing status.
What Clinton Wants: To close tax loopholes for the wealthiest Americans so that they don't pay a lower tax rate than the middle class. The Clinton plan would implement the Buffett Rule, which calls for individuals or households earning more than $1 million annually to be subject to at least a 30% tax rate. It would also impose a 4% Fair Share Surcharge on those earning more than $5 million and cap the savings on itemized deductions to 28% of the value of the deduction, a move that would affect mostly those in higher tax brackets. To encourage long-term investing, Clinton would change the schedule on capital gains tax rates so anything held for less than two years would be taxed at a 39.6% marginal rate, with a sliding decrease to 20% for investments held more than six years.
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How This Could Affect You: The Clinton plan doesn't actually change much for the average middle-class taxpayer, says Scott Greenberg, an analyst with theCenter for Federal Tax Policy at the Tax Foundation in Washington, D.C. Even the changes in the capital gains schedule likely won't affect the middle class much, since the 39.6% tax rate applies to the highest bracket of taxpayers and "that's not really the situation the middle class would be in," he adds.
Trump's proposal, on the other hand, could cut taxes significantly for both the middle class and the wealthy, with the potential exception of middle class families with children. Why? Because of the elimination of the personal exemption. Even though Trump is proposing a deduction for childcare expenses in its place (more on that to come), "this deduction and the other host of childcare benefits in the Trump plan may [end up] smaller for some families than the personal exemption," Greenberg says.
Greenberg warns neither plan is not without a potential impact on long-term economic growth, however. Clinton's proposed tax hikes on the rich could discourage business investment by the very wealthy, while the trickle-down effect of Trump's proposed dramatic tax cuts could produce a shortfall in federal revenues—and thus contribute to a ballooning federal deficit.
(One note: That "carried interest" that the candidates keep talking about? That doesn't apply to the majority of folks—it's compensation that fund managers on Wall Street earn based on their fund's performance, and both Trump and Clinton want it taxed as ordinary income, rather than at lower capital gains rates.)
Jobs and Wages
What Trump Wants: He has moved the goal post on minimum wage, at times saying he believes states should set it, at other times saying it should be raised to $10 an hour. Trump has tried to keep focus on tax cuts for spurring job creation and higher wages and he wants to negotiate tougher trade deals with foreign partners and impose punitive tariffs as a way to create or retain jobs for U.S. workers. He has yet to announce details on how or whether he would narrow the gender wage gap.
What Clinton Wants: To increase the federal minimum wage to $15 an hour. She has vowed to make major investments in infrastructure, manufacturing, research and technology, clean energy and small businesses in her first 100 days as president. Clinton has made equal pay a major platform; she wants to pass the Paycheck Fairness Act and promote pay transparency, as well as restore collective bargaining rights for unions. Clinton does not endorse President Obama's Trans-Pacific Partnership because it could cut American jobs and hold down wages.
How This Could Affect You: Although many people might assume a minimum wage hike would only help workers in low-paying industries like food services, it could also positively impact pay for secondary earners in middle-income households, such as younger workers or stay-at-home parents who work part time, says Harry Holzer, an economist and professor at the McCourt School of Public Policy at Georgetown University. He does, however, point out that "the higher you raise [the minimum wage], the more risk you run that there will be some jobs that are eliminated."
Trump, meanwhile, has stated that his economic policies would lead to explosive job growth and grow the GDP by more than 4%—a claim that Holzer gives little weight to. "I don't know a single serious economist who believes we're going to get to 4% growth," he says. Holzer also believes any policies that would hurt trade could be harmful for wages. "If you slam imports, you'll kill off exports and start a trade war," he says. "Exports create a lot of jobs and are usually better-paying than the jobs you lose from imports. So bashing trade is a loser, from a wage point of view."
What Trump Wants: An immediate repeal of the Affordable Care Act (ACA), to be replaced with health savings accounts and free-market-based options that allow insurers to sell policies across state lines. He wants to let individuals deduct health insurance premium payments from their tax returns.
What Clinton Wants: To enhance the ACA by expanding access, even to immigrants; making enrollment easier; and further lowering consumers' out-of-pocket expenses, including curbing prescription drug costs. She proposes a refundable tax credit of up to $5,000 for families with private insurance who have costs exceeding 5% of household income and increased tax credits for marketplace plans so enrollees pay no more than 8.5% of their household income on premiums. Other proposals include a federal "public option" health insurance agency formed to compete with private insurance companies.
How This Could Affect You: If you're one of the 20 million people covered by ACA plans (aka, Obamacare), the most obvious impact would be if Trump wins and gets a repeal; this would mean that you'd lose medical coverage, says John McDonough, a professor of public health practice at the Harvard T.H. Chan School of Public Health. And that means, of course, higher healthcare costs—particularly if you have a pre-existing condition, as one of the ACA provisions was that consumers could not be denied coverage because of their prior medical history. "Obamacare is a safety net for everyone," McDonough says.
As far as the tax deduction for premiums goes, McDonough believes that benefit would largely work toward the advantage of higher-income taxpayers. "Obamacare subsidies are designed to provide the greatest assistance to people with less money to buy health insurance, and the Republican approach as articulated by Trump is to give the greatest health [coverage] to people who have the highest income—most of whom have coverage and aren't in need of further benefits."
A recent analysis by research and public policy think tank RAND Corporation compared the impact of repealing the ACA and estimated that the average out-of-pocket cost for people who obtain insurance on the individual market with Obamacare intact would be about $3,200, compared with $4,700 without Obamacare.
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What Trump Wants: He has said before that the government shouldn't profit off the student loan business, but he is short on details for his own plan. Instead, Trump says he'll work with Congress on reforms to ensure universities are making a "good faith" effort to reduce the cost of college and student debt in exchange for federal tax breaks and tax dollars. He does not endorse any form of free tuition.
What Clinton Wants: Once in office, she promises to sign an executive order for a three-month moratorium on student loan payments to all federal borrowers, to give them a chance to consolidate their loans, sign up for income-based repayment programs and refinance debt at current rates. Clinton also wants to make enrolling in income-based repayment plans easier. She proposes free tuition for in-state, four-year public colleges and universities to every student from a family making $85,000 or less; by 2021, that income threshold would rise to include families making up to $125,000. She also wants free tuition at all community colleges.
How This Could Affect You: The U.S. Department of Education estimated earlier this year that 43% of the roughly 22 million Americans with federal student loans were either behind on their payments or had postponed them because of financial hardship. If you're one of them, then Clinton's proposals should help provide some immediate cost relief.
Her free tuition plan also sounds compelling, but keep in mind that if costs exceed her proposed budget for them (currently $500 billion), then the financial burden could shift to taxpayers. "[An income of] $125,000, right now, that's the 85th percentile for household income. So everyone but the top 15% would get free college tuition at state schools; that's a really big promise," says Monica Herk, vice president of education research at the Committee for Economic Development in Arlington, Virginia—especially in light of the expected influx of students that free tuition would spur. "Many people are going to want to shift into state schools because of the large price differential [from private schools]. Who's going to foot the bill?"
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Child and Dependent Care
What Trump Wants: Six weeks paid maternity leave for new mothers via unemployment insurance (which is usually a fraction of regular wages). He wants to give individuals or families the option to open tax-advantaged dependent care savings accounts to help cover the expenses of caring for a child or adult; contributions would be capped at $2,000 a year per account. Trump has also proposed a tax deduction that would let families write off the average cost of childcare in their state for up to four children; individuals earning more than $250,000 and couples earning more than $500,000 would not be eligible. The Trump plan would allow caregivers a tax deduction of up to $5,000 per year to cover care costs for an elderly dependent and expand the Earned Income Tax Credit with a tax rebate of up to $1,200 for lower income families, with a matching $500 contribution into a dependent care savings account.
What Clinton Wants: Twelve weeks of paid family leave for new mothers and fathers for at least two-thirds of their wages, up to a ceiling. She also wants to cap childcare costs at 10% of a family's income via tax credits for middle-income parents and federal subsidies for low-income families. The Clinton plan would also offer universal preschool for 4-year-olds and increased pay and training for preschool teachers.
How This Could Affect You: In theory, both candidates' plans could help relieve the costs of childcare or eldercare, although in different ways. "Trump wants to run all of this through the tax code and give people money, while [Clinton] wants to use the power of government to provide better childcare and reduce what people have to spend," says David Wessel, director at the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, a think tank in Washington, D.C.
If you're a new father or adoptive parent, however, you'd be excluded from Trump's leave plan. And because his policies center around tax deductions for your childcare expenses, higher-income families stand to benefit more from them than would middle- or low-income earners, who would get a smaller tax break on their spending than those in higher tax brackets.
In addition, Clinton seems to have offset any federal spending or tax cuts she has proposed in order to avoid a deficit, Wessel says. But there aren't enough details yet to know the impact of Trump's proposed tax cuts. "There's no reason to say [his childcare policies] would be bad for people, but he hasn't exactly explained how he can afford to do them," he adds.
Information shown is not intended as tax planning advice. Please consult a tax specialist for advice specific to your financial situation.
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