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How A Trump Presidency Could Affect Your Finances

Healther Long, CNN, Donald Trump

With Heather Long, CNN’s Senior Markets and Economy Writer

Last week we spoke with Heather Long, CNN’s Senior Markets and Economy Writer, to discuss Hillary Clinton’s economic policy (click here for the interview). This week we again asked Heather to bring her insight to examine Trump’s ideas and how you would be financially impacted under his economic platform.

As a brief recap of last week’s segment, we compared Trump’s economic message of “America first” and Hillary’s as “families first”. While Donald Trump wants to start on day one by tackling our trade policy, Hillary’s primary goal in the first 100 days is to bump up infrastructure spending.

To further expand on the comparison of their individual tax platforms, Hillary said she would raise taxes on those earning over $250,00, while Trump said he would cut taxes across the board, both for individuals and for corporations. He’s also on record wanting to do away with estate tax and lowering capital gains tax, which would be a boon to US businesses but also would, in effect, mean a lot less revenue for the government. Whether or not this would stimulate the economy, as Trump says it would, is a matter of some debate.

Trump has also been widely quoted as saying that the US is the big loser in trade deals, particularly with Mexico and China which he wants to reverse by taxing goods coming in from those countries. Of course, this will have an effect at the consumer level with higher prices at the store and, in addition, will most likely result in those same countries imposing their own taxes on goods and services from the US.  (Some economists fear the result could be a trade war, such as preceded the Great Depression.) Clinton also has spoken about imposing tariffs on trade, although to a somewhat lesser degree.

Would these tariffs bring jobs back to the US, as Trump declares? Many economists think this to be a bit of magical thinking. It may indeed take manufacturing away from China and Mexico only to be moved to other parts of Asia or Africa, instead.

Regarding issues most relevant to women, Trump has proposed a bigger tax credit to offset the cost of childcare and eldercare. A problem with this, says Heather, is that many lower-income families don’t incur enough income tax to be helped by this credit; however, Trump has also come out saying the credit could be used against payroll tax, which has to do with Social Security. Donald Trump has also stated that he wouldn’t touch Social Security or Medicare, but he has winked at some entitlement cuts.

If this all sounds a bit murky, bear in mind that we’re riding along on the presidential election trail and candidates will continue to make promises and to modify those promises, right up to the moment when he or she places his or her hand on the Bible to assume the Presidency of the United States. Then we the people will witness what happens with every presidential election platform, no matter how well-intentioned or well-planned, as it either partially survives or is swallowed up by the forces of reality in Congress and the world stage. Then we likely will get something like that box of chocolates in Forrest Gump’s lap.

On September 22 at The Boca Raton Renaissance Hotel, Steve Pomeranz invites all interested parties to an open discussion of what the outcome of this presidential election means to your money, your portfolio, and your financial future.  Click here to sign up.

Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital.  Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions.  Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances.  The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.

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Steve Pomeranz: On September 22, I will be inviting you all to join me in person as I discuss what this presidential election means to your money and your finances, and I’ll talk more about that in detail at the end of this segment, so stay tuned for that. (Click here for more.) Today, I continue a discussion on the various proposals and the effect that they will have on your pocketbook.  This is a completely non-political look at the different candidates’ proposals that will affect your money and your finances.

Last week, I spoke with Heather Long about Clinton’s proposals, and I’ve asked Heather back again to talk about Mr.  Trump’s plan.  Heather Long is CNN Money’s Senior Markets and Economy Writer.  Hey, Heather, welcome back to the show.

Heather Long: Good to be here.

Steve Pomeranz: Let’s start with Trump’s tax plan.  Last week, we discussed Hillary’s plan, which will raise taxes on those pretty much earning over $250,000.  What does Trump’s tax plan look like?

Heather Long: Yep.  It’s definitely at the heart of his economic policy, and that is big tax cuts across the board, in a line, in a nutshell.  He wants to cut for both individuals and for businesses.  He wants to do away with what’s sometimes called the estate tax or the death tax, and he wants to lower the capital gains tax.  The basic line is people in businesses would pay a lot less under Trump.  The controversial part is that also means a lot less revenue for the government.  Independent groups that have looked at his plans have said, “Wait a minute, this could really run up the debt.” There’s a debate between how much would this stimulate the economy and people would be better off versus would this create a real problem for the United States if the debt really ballooned under Trump.

Steve Pomeranz: I’m sure that they would argue that this cutting taxes across the board would go a long way to stimulate the economy and, therefore, create more jobs and, therefore, more revenues.  I know that the think tanks that calculate the effect of these plans on the deficit don’t really take into account any possible growth in jobs because that’s a very difficult thing to do, but I think that’s their counter-argument anyway.  Whether that actually happens or not is really a good question.
One thing that I did notice— I call it the carrot and the stick—with regards to Trump’s plan to reduce the amount of corporations that merge with foreign corporations in order to get a lower tax rate.  Right now, the typical U.S.  Corporation is taxed at 35%.  You can merge with a foreign company that is at a 15% tax bracket, and thereby you now are making more, millions and millions of dollars for your shareholders, just by moving your domicile to another country.

Trump’s plan is to reduce corporate taxes to 15%, thereby de-incentivizing corporations to make this change that’s called an inversion.  Clinton’s plan is to basically penalize those companies for doing the thing.  I call it the carrot and the stick.  It looks like, in this case, Trump is offering the carrot and Hillary’s offering the stick.  What do you think about that?

Heather Long: Yeah, I think you’re right, and it sort of goes to the bottom line of what their philosophies are on how to treat businesses and the economy.  In addition to lowering taxes on businesses, Trump has also been stating and then playing up the fact that he wants to scale back regulation.  Again, that’s a typical policy proposal that we hear from Republicans.  It’s also another one that can be difficult to get your head around how much of an economic impact that would have.

I do think what’s interesting, though, is it all seems to be this question about how far will each of these candidates go.  Everyone on the campaign trail likes to promise the world, but once they got in office, how much would they actually do?  You bring up an interesting point that Trump’s saying, “Look, we need to lower taxes on businesses across the board,” and one of the big signs of that is the growing number of companies who are going overseas to try to avoid taxes.  He’s proposed the 15% number that you said.

Now recently, in a speech earlier this August, earlier this month in August, he proposed slightly higher individual income taxes than what he had been saying several months ago, and that was sort of to try to address, “Wait a minute, I don’t want to add too much to the debt, so I’m still going to lower your taxes,” but instead of, say, taking the top rate …  Originally he wanted to take the top income tax rate for individuals down to 25%, and now he’s saying, “Well, maybe we’ll go down to 33%.” Still a good bit lower, but not as low as he was going to.

It’s not clear what he’s going to do for business, though, because the plan that he seems to be kind of basing his new tax policy off of is the House Republican plan by Paul Ryan.  Really, a lot of people see that as kind of the Republican bottom line, baseline answer to taxes.  What’s interesting in the Ryan plan …  I was just looking it up today…it’s a 20% business tax rate.  Again, still a lot lower than what we’ve got now, but is he really going to go to 15%?  He really hasn’t clarified that yet, but I’m beginning to wonder.

Steve Pomeranz: Before he made that speech, he announced that he had hired or named a dozen or so economic advisors, hedge fund guys, billionaire guys, and according to one article, six guys to buy hydrocodone online named Steve. Now I want to just clarify to my listeners that I’m not included in that list of Steves, but it’s kind of funny that all guys all named Steve.

Anyway, let’s talk about personal finances and the proposal that Trump has made to try to address the high cost of childcare.  What is he proposing there?

Heather Long: Yeah, it’s become quite the issue for both candidates on the campaign trail, and it was a bit of a surprise.  The real big new ticket item that he talked about here in August is he seems to be trying to broaden his appeal to women and to people who aren’t sort of his traditional base.  What he came out with is he said, “Look, we’ll give you ..”. At the moment, there is a cap on how much you can deduct.  There is a tax credit that you can apply for, to offset your childcare expenses as well as eldercare expenses or dependent care.  He said, “Look, we’ll either take the limit off or we’re going to raise it dramatically.  Basically, we’re going to give people a much, much bigger tax credit.” Now, at first glance, that sounds good.  There’s a lot of places here in the country—I live here in New York City where the childcare can cost ridiculous amounts, $20,000, $30,000, so that could be a real benefit to a lot of kind of middle-class families.
The problem a lot of people find is, look, what about lower-income families, those working-class families that you really want to help?  A lot of times, they don’t even have enough income tax to offset, so how is this credit going to help them?  You got to have something to put the credit towards.  His campaign then clarified.  They came out, they talked to CNN, the New York Times, said, “Well, what we’ll actually do, maybe we’ll also create a credit that could be used against the payroll tax.” That’s a very, very different type of tax policy that we really haven’t seen before, so, again, it’s unclear how that’s going to work.

Steve Pomeranz: I had read that it’s really not a tax credit, but it’s a tax deduction.  That’s quite a different thing.  Over 45% of Americans don’t have income above zero, so whether you’re getting a deduction, meaning that you’re allowed to reduce your income by a certain amount and save the taxes on that money, versus a credit where you look at your taxes owed and you get to deduct directly from taxes owed, either way, to your point, Heather, 45% of people don’t even really declare any taxes whatsoever, so that’s not really going to help them.  If now they’re going to go after the payroll tax, I mean, in a sense, there’s nothing sacred anymore.  It’s just a big giveaway every time you turn around.  The payroll taxes have to do with Social Security and…

Heather Long:     Exactly.

Steve Pomeranz: …and the Affordable Care Act.  Now, you’re not even going to have to pay those.  It’s very, very complicated and very troublesome in the sense that where is all this money really going to come from.

Heather Long:     Yeah.  It’s interesting that you brought up Social Security and Medicare because Trump has said he doesn’t want to touch those, that he wouldn’t make any changes.  Of course, I’m sure your listeners are well aware that that’s really what’s driving America’s long-term debt problem and how are we going to pay for these.  They’re not sustainable long term.  A lot of people have also said, “Well, what’s Trump’s plan on those?  He’s just not even going to touch them?  Is that the right approach?”

Steve Pomeranz: Yeah.  He, also, I think, recently said that—or at least his people said—that they may have to look at some entitlement cuts, so they have winked at that proposition to some degree.  I guess the bottom line for either of these candidates is that they can promise the world to get your vote, but, in reality, when it comes down to, first of all, getting them passed through Congress, they’re going to look entirely different, and number two, who’s going to pay for all this?  We’re all going to end up paying for it, and the deficit will continue to grow and grow and grow.  Now under Hillary’s plan, she’s raising taxes so much that independent agencies have basically said, “Hey, it’s going to be at best probably, or at worst, tax neutral.” Right?  The amount that she raises, she’s going to spend.

Heather Long: You got it. To clarify that, that’s taxes on the wealthy, in particular, individuals and families earning $1 million or more.  She said no tax hikes if you’re $250,000 or less.  Trump’s obviously doing much deeper.  He likes to use the line that he’ll have the biggest tax cuts ever or, at least, since Ronald Regan.  If that’s the case, the problem for him is that it would add, people have said, $10 trillion to the deficit over the next decade.  Now, again, he’s kind of tried to say, “Well, maybe I’ll tweak my plan a little bit,” so it would only add several trillion, not $10 trillion.  Those numbers still look pretty alarming for people in terms of the debt picture there.

Steve Pomeranz: Let’s talk about trade.  What is Trump proposing with regards to trade and how do you think that will affect all of our individual finances in the long run?

Heather Long: If you take him at face value, and that’s always a question mark, but if you really just took his statements as exactly what he’s going to do, he’s been pretty clear that he thinks the United States is a huge loser on trade right now, particularly with Mexico and China, and that we need to fight back.  In his mind, the best way to fight back—there’s a lot of ways to do it—one of the best ways is to put up tariffs, put taxes on goods coming from China and coming from Mexico into the United States.

Now there’s the question could he even do that as president without the action of Congress, particularly in the case of Mexico where at the moment, we have a free trade deal with them under NAFTA.  The second point to make that scares a lot of people is, look, you put those taxes on, particularly as high as he said, up to 30%, even 45%, that immediately makes the goods more expensive.  When you go to the store and you want to buy, whether it’s clothes …  We all joke, right, you look at your clothes, you look at the items in your house, how many of them have that “Made in China” stamp on them.

Steve Pomeranz: Sure, yeah.

Heather Long: If they’re suddenly 45% higher or even 20% higher, that’s a massive tax.  The consumer is going to face that every time they go to the store.  That’s sort of at the consumer level.  At the economic policy level, a lot of economists on both the left and the right say, “Wait a minute, this is probably not a good idea,” because if you’re China, you’re Mexico, and Trump says, “Okay, we’re going to tax the heck out of your goods coming into the United States,” you’re probably not going to sit there and write him a thank-you note.  You’re going to turn around as those countries and you’re going to start taxing the goods and services that the United States is sending back to those countries.  It’s this question of there’s this real fear that Trump would ignite a trade war and that that would be really disastrous to the economy.

Steve Pomeranz: One of the great reasons given for the Great Depression was a rise in tariffs and protectionism back then, so it’s something to really be extremely wary of.  By the way, I’m speaking with Heather Long from CNNMoney.  Heather, you bring up an excellent point.  If I’m shopping at Target, I’m shopping at Walmart, and I’m on a budget and all of a sudden everything that I buy, from backpacks to pants to food, is now going to cost me 30% to 40% more, that’s going to be a huge burden on my finances, and it could break the bank for many people.  Nobody seems to be talking about the effect of these kinds of trade wars.  Really, I guess the other way to put it is the benefit that America receives from having open trade.

Heather Long: That’s right. Trade has definitely been a dirty word on both sides of the campaign trail.  Bernie Sanders hit these issues hard and now we’ve seen Hillary move further in that direction as well.  She even earlier this month said she would be willing to do tariffs as well.  She didn’t put a number on it like Trump but certainly sounded way more protectionist.  The sort of soft sell that both sides, particularly Trump, are trying to make to the American people is that if we did this, it would bring jobs and factories back to the United States.  Instead of making those, I don’t know, the teddy bears and the sandals over in China, we would suddenly start making them here in the United States again.

A lot of people just say, business people, economists, say that is totally unrealistic.  If they aren’t made in China, they’ll move and make them in other parts of Asia or other parts of Africa.  Unless you’re just going to tax the heck out of every other part of the world, which, again, would just make our goods more expensive, going to the store more expensive, you’re not going to bring a lot of those jobs back to the United States.

Steve Pomeranz: Some insight.  I hope we’ve helped you listeners understand exactly what the actual numbers are behind some of these proposals and what the possible meanings are.  My guest, Heather Long, CNNMoney’s Senior Markets and Economy Writer.  Heather, thanks again for coming back a second time.

Heather Long:     Thank you.

I've been an investment strategist and adviser for over 35 years, leading with a mission of unbiased advice to educate and protect listeners on my weekly radio show on NPR affiliates nationwide. I have been named a “Top 100 Wealth Advisor” by Worth Magazine and “Top Advisor” by Reuters.