What to Expect From Trump’s Economic Policies

Taxes, tariffs, health insurance, student loans and more

Ric Edelman: It's Wednesday, November 13th. Yesterday, I told you that the big winner in the election is bitcoin, but frankly, there's a whole lot more going on regarding your money than just bitcoin. So, let's talk about what Donald Trump's election victory means for your money, whether you voted for Trump, whether you voted for Harris, whether you voted against Trump, he's going to be the president.

The Republicans are controlling the Senate and they might end up controlling the House. Big implications for all of this on your personal finances. Let's take a look at what we know so far.

First, Taxes. In Donald Trump's first term, he gave us lower income tax rates, a higher standard deduction, and a bigger child tax credit. All of these were supposed to expire at the end of 2025, but Trump will most likely renew them. Kamala Harris had said she would have let them all expire, which means we would have been facing big tax increases.

Donald Trump has said he wants to keep taxes low. He wants to even make them lower than where they are now, so you can anticipate lots of new tax legislation to keep taxes low and to make them go even lower. This doesn't go without critics, of course. Many argue that lower taxes means lower revenue, which means higher deficits, which means higher inflation.

Stay tuned. On taxes, though, you can expect them to go down. On the estate tax, you can expect that you're most likely not going to have to pay estate taxes. It's only people who have 36 million dollars or thereabout who have to worry about this. And, sorry, that's probably not you. So, you don't really have to worry about an estate tax. However, that's on the federal level. On the state level, some states have their own estate tax or inheritance tax. So, talk with your financial advisor, talk with your attorney to see if you need to pay attention to state estate taxes as opposed to federal.

Then there's the SALT tax, state and local taxes. In 2017, Donald Trump signed a law. He didn't like it, but he had to kind of go along with Congress on this one. He signed a law in 2017 that put a $10,000 limit on the amount you can deduct on your tax return for state and local taxes if you itemize.  This was a big deal for people who live in New York, California and New Jersey. Why? Because in those three states, you're dealing with very high property taxes. That's a state or local tax. A lot of people are paying a lot more than $10,000 in real estate taxes because they live in such expensive locations. New York, California, New Jersey, among them. And they were only able to now deduct, ever since 2017, $10,000 of their tax.

Which means they were basically paying taxes twice. Once at the state level for the property tax and then again at the federal level because they couldn't deduct the tax they paid at the state level. Donald Trump never liked the SALT tax and it's likely that he's going to try to lift it.

Then there are student loans. Donald Trump is going to put a stop to Joe Biden's efforts to cancel student loans. So, if you're among those who hasn't been paying their student loan bill, kind of figuring, “Oh, the government's going to waive my obligation to repay it.”  That party is probably over. If you owe money to student loan debt. You need to assume you're going to have to repay it.

Tariffs? Well, this was a big controversy in Donald Trump's campaign. He said he wants to increase tariffs. He wants to create a 100% tariff. He wants to do this for countries all around the world. And particularly, he targeted China. You can expect that Donald Trump is going to increase tariffs. Many people don't like this idea, arguing that other countries will simply retaliate by hitting us with tariffs, and it's going to result in inflation. If everybody is levying tariffs against everybody else, the cost of everything you buy is going to go up dramatically, leading to big inflation.

Will that happen? Will the tariffs get put into place and on what products and from which countries? I don't know. We're going to have to wait and see. But you can expect Trump to move pretty quickly on the topic of tariffs.

Donald Trump also said he was going to put an end to taxes on your tips. If you are in the food service industry, for example, and a lot of your income comes from getting tips.  Trump said he would eliminate your taxes on that. He also said he would eliminate your taxes on overtime pay and on your Social Security benefits. We're going to have to wait and see if he makes good on these, but many people believe that he's going to.

Now let's look at health insurance. In his first term, Donald Trump tried to repeal the Affordable Care Act, Obamacare, but he failed to get Congress support. He's going to no doubt try to do it again. He said during the campaign that he has a plan. If they come up with a plan, we'll see how successful he is the second time around.  On the same topic of health insurance, Donald Trump has said that he wants insurers to pay for IVF (in vitro fertilization).

On Social Security, Trump has said that he will not cut Social Security benefits. But quite frankly, that is only going to make the problem worse. Every recent politician from Joe Biden to Kamala Harris and including Donald Trump has made the same campaign pledge that they will not reduce Social Security benefits for retirees. That is going to be a challenge because the Social Security Trust Fund is responsible for about 23% of the money you get in Social Security benefits.  The other 76%-77%, that comes from payroll taxes from US workers.

Well, starting in 2033, the payroll tax is going to be the only thing left because the trust fund will be depleted. So, it's easy for Donald Trump to say he won't cut Social Security. He doesn't have to. The Social Security trust fund will exist over the next four years.

The question is not what happens during these four years. The question is what happens starting in 2032, 2033, when the trust fund no longer exists. So, if Donald Trump is not going to cut Social Security benefits, if he's not going to raise the retirement age, if he's not going to delay benefits, if he's not going to tax Social Security income, then what he is going to do is nothing. Taking the attitude it’s not his problem. He can wait for his successor to deal with it in four years, or he's going to raise the Social Security payroll tax.

 I'll make a bet with you. Do you think Donald Trump is going to raise payroll taxes during these next four years? Or do you think he's going to kick the can and force his successor to have to deal with it? Yeah, I think you know what my bet will be on that one.

Then there's Medicare. Donald Trump says he wants to strengthen Medicare, and he also wants it to pay for home health services, also known as long-term care, but he hasn't said any details about implementing those, so we'll have to wait and see. I think there's a lot of enthusiasm in Congress to improve Medicare and for it to pay for home health services. So I do expect legislation in this area.

On the other hand, while Trump has been very favorable about strengthening, supporting, enhancing Medicare, he has said he wants to cut Medicaid. What's the difference between the two? Medicare is the health insurance program for retirees. When you reach 65, you're going to be covered by Medicare.

But Medicaid is the health insurance program for the poor. Regardless of your age, if you're poor, you are eligible for Medicaid. Trump wants to preserve Medicare for retirees. He wants to cut Medicaid, which benefits the poor. We'll see if Congress goes along.

Trump has also said he wants to cap interest rates on credit cards. He wants credit cards to charge no more than 10%. My bet is that this won't happen. The credit card industry is going to fight this intensely. The economic implication is massive. More Americans get more of their debt funding from credit cards than any other source. More than mortgages, more than car loans, more than personal loans, more than anything except student loans. Credit cards are incredibly vital to a great many Americans who are frankly living paycheck to paycheck.

And the reason you're able to get a credit card is because credit cards are very, very profitable for the credit card company, because you're paying 18% to 29% in interest on an annual basis. If Trump caps the interest rate on credit cards to 10%, one simple thing is going to happen.

A whole big number of Americans who currently have credit cards are going to lose them. Because the credit card company will not be able to make enough money off of you to justify the risk they take in giving you the credit card in the first place. That's something we have to understand. Why is it that the interest rate is so high on the credit card?

Why is the credit card company forcing you to pay 18% in interest or even all the way up to 29%. The reason is because the credit card is an unsecured loan. In other words, if you use the credit card to buy a sweater and then you don't pay the credit card bill, Visa can't go after you for the sweater. There's nothing they can do other than take you to court. It's really expensive for Visa to do that. And so they know they're going to write off a whole bunch of the credit card debts that people owe. And that's why they charge everybody 18% to compensate for the people who default on their debt repayments.

So, if Visa can only charge 10% to everybody, then they're only going to give credit cards to the people who are not going to default. The best credit risks. People who have demonstrated that they are honorable, ethical and financially able to repay the debt. So, Donald Trump might get his wish by capping credit card rates, but it's going to have a huge negative impact on the economy. This is why I don't believe that he's going to deliver on that campaign promise. But hey what do I know? Maybe he will.

We're going to see lots of new legislation, lots of new policies, lots of new executive orders, and they're going to come pretty fast as soon as Donald Trump takes office on January 20th.

One of the things we already know we're dealing with are declining interest rates. And if you haven't yet signed up for our webinar, that is today. November 13th, 1:00pm EST. You're going to really enjoy this. I'll be joined by Rene Reyna and John Burrello from Invesco. We're going to show you some ETFs that are designed for generating investment income in a world of declining interest rates.

It's a free event. You get one CE credit if you're a financial advisor. The link to register is in the show notes. I look forward to seeing you today at 1:00pm.

You'll also learn about the newest member of Invesco's ETF suite, QQA. If you are at all interested in the issue of generating income, in an environment of declining interest rates for yourself or on behalf of your clients, you need to attend this event tomorrow, 1:00pm EST.

It's free. If you're an advisor, you get one CE credit. You can register by using the link in the show notes or visit TheTruthAYF. com.

If you like what you're hearing, be sure to follow and subscribe to the show, wherever you get your podcasts, Apple, Spotify, YouTube, and remember leave a review on Apple podcasts. I read them all. Never miss an episode of The Truth About Your Future. Follow and subscribe on your favorite podcast app.  

I'll see you tomorrow.

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Links from today’s show:  

11/13 Webinar - An Innovative Way to Generate Income in a World of Declining Rates: https://www.thetayf.com/pages/november-13-2024-an-innovative-way-to-generate-income

10/9 Webinar Replay- Crypto for RIAs: Yield, Staking, Lending and Custody. What’s beyond the ETFs? https://dacfp.com/events/crypto-for-rias-yield-staking-lending-and-custody-whats-beyond-the-etfs/

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