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As with any new President, Joe Biden will have his work cut out for him when he takes the oath of office in January. And while his “build back better” plans are already laid out, it’s yet to be seen how much of an impact his administration can actually make on your finances.
The COVID-19 pandemic’s not behind us, so the recovery will be slow, which Biden has been clear about. Not to mention, with a very possible Republican Senate majority, many of the new administration’s initiatives could face serious pushback, if not a total squashing. The outcome will be determined in a couple months when Georgia’s two Senate run-off races happen.
In short, we can’t read far into what Biden is proposing and use it as a playbook for our personal finances today. “I’m not a big fan of people overhauling their finances or making moves on a presumption of something passing, simply because there are just too many unknowns,” Greg McBride, Chief Financial Analyst at Bankrate.com, told me on my podcast.
Here’s a breakdown of some of the major economic initiatives proposed by President-elect Joe Biden and Vice President-elect Kamala Harris, and how to interpret them for the sake of our financial well-being. As always, personal accountability will be just as — if not more — important than matters of policy.
Higher federal taxes, but only on those making over $400,000.
The proposal: The Biden-Harris team proposes raising taxes on the country’s richest people, including those earning more than $400,000 a year. That means increasing the highest individual income rate back to 39.6% for people who earn more than $1 million and taxing investment income at the same rate as wage income.
At the same time, the team proposes expanding certain tax benefits like the Child Tax Credit during the pandemic for middle- and low-income families. In the long-run, we’re told we can also expect additional tax credits toward home buying, as well child care and health insurance costs.
How we should act: It appears that the country’s wealthiest can expect a bigger tax bill in the near future if Biden and Harris get their way. But that doesn’t mean everybody else is off the hook. Remember, states are running broke at the moment and will need to make up for their deficits somehow. “The overall trend of states and municipalities needing to raise more tax revenue, that kind of tells you which way the wind is blowing over time,” says McBride. Even if your federal tax bill doesn’t change, some should prepare for state and local taxes to go in the other direction. Hope for a decrease, but plan for an increase.
Student Loan Debt
Good news for borrowers, better news for future college goers.
The proposal: U.S. student loan debt exceeds $1.6 trillion and is a giant headwind on the path to success for millions of recent (and not-so-recent) college graduates. The Biden-Harris administration understands this and has announced initiatives to help existing borrowers save money and make higher education more affordable.
They include making community college tuition-free for up to two years, making public colleges and universities tuition-free for all families with incomes below $125,000, and doubling the maximum value of certain federal aid, such as Pell grants for low-income and middle-class individuals.
For graduates, there’s also the plan to provide more loan forgiveness for those who choose to work in public service, and make the existing Income-Based Repayment Plan (an Obama-era provision) even more affordable by reducing the monthly payments by more than 50%.
How we should act: While it may sound weird to say this, don’t pay off your federal student loans too aggressively in the next year, just in case new laws arrive providing more relief. If you’ve been benefiting from the federal student loan deferment program set forth in the CARES Act, stay the course until it expires at the end of the year.
There is a lot to look forward to if Biden’s plans get enacted. But stay on top of the news and don’t wait for your lender to call you with ideas on how to make your loan more affordable through income-based repayment or other programs. As we learned in this pandemic, relief is out there, but you often need to seek out support yourself.
For private loan borrowers, support will be handled on a case-by-case basis. Be sure to get ahead of any financial challenges by calling and requesting to refinance or modify your loan.
Know what’s growing.
The proposal: In general, we’re told to expect more jobs both immediately and in the coming months and years. Biden’s plan also references “higher wages, stronger benefits, and fair and safe workplaces.”
The Biden-Harris team promises state, local and tribal governments with an infusion of financial support to help first responders and essential workers keep their jobs. There’s also the plan to “immediately” create new jobs by employing people in fields like contact tracing to help fight the pandemic. And in a bid to spur private job creation, there’s a multi-faceted proposal to help grow the workforce by making investments in key industries like infrastructure, clean energy, caregiving and education.
As for unemployment insurance, the administration aims to extend COVID-19-related unemployment insurance to assist those currently out of work. It would also implement an employment insurance plan in which all states enact and ramp up “short-time” compensation programs. In effect, this would allow struggling employers to avoid layoffs and keep more workers in place (perhaps at reduced hours) by having the federal government make up the difference in wages. Also known as “work sharing,” this has already been adopted by 27 states.
How we should act: If you work in any of the above industries, or have plans to enter a career path that includes, for example, education or caregiving, you can take comfort in knowing that the next administration plans to put a great deal of resources and funding behind them. If you’re on the fence about pursuing a career in retail versus education, the smart money might bet on education when it comes to job security.
But don’t get too certain or comfortable. Do as we always should when it comes to protecting income security: be a top performer (and advocate for yourself) at work, consider up-leveling your skills to increase your indispensability, have a rainy day stash (because nobody’s job is bullet-proof) and consider adding a side income stream to help supplement your full-time paycheck.
For anyone who’s lost income in 2020 and hasn’t applied for unemployment insurance, now is a good time to do so. Access to benefits was expanded under the CARES Act, but those provisions expire at the end of the year.
The Racial Wealth Gap
Plans are promised, but remember to make it personal.
The proposal: The Biden-Harris administration’s action plan includes several ideas to help ease the many wealth inequalities caused by racism in this country For example, they want to promote small business by investing more public-private money in entrepreneurs. They say they’ll reform opportunity zones, invest more in homeownership and access to affordable housing for Black, Brown and Native families, and provide more equity in management, training and higher education linked to the jobs of the future. There’s also a goal to strengthen retirement security and wealth, and to make certain that workers of color are paid fairly.
How we should act: It’s wonderful that the next administration has boldly made this a top priority, but I think we can all agree that we can not simply wait for government officials to create change. They pay an integral role and we should certainly hold the government accountable, as so many of the systemic problems that create racial inequity are a result of racist policies. But we need to continue to work fast, together and loudly. Individuals must continue to do the important work of being anti-racist, supporting Black businesses and programs with our dollars and narrowing the inequities. Ask yourself: what’s one thing I can do now to help support racial equality?
Reform will be slow-moving.
The proposal: With America in the middle of a pandemic, health care is on everybody’s mind. The Biden-Harris team vows to protect and build upon the Affordable Care Act that President Barack Obama signed into law in 2010. The Biden-Harris team’s biggest plan is to create a “public option” for health insurance, run by the government and available to people of all ages. It would, in theory, be more affordable than private market options.
As with so many of their other proposals, this will require the backing of the Senate, so we shouldn’t be quick to assume the health care promises will be a go. More imminently, the existing ACA once again faces a potential Supreme Court ruling on its constitutionality.
How we should act: With patience. Fortifying the ACA is important to Biden-Harris, but issues like stopping the pandemic and rebuilding the economy will take precedent and may last through all of 2021. In the meantime, do your best to stay healthy—one of the best ways to lower your future health care costs is to take care of yourself. The last place you want to end up now or in the next six months is a hospital. So remember to distance from others, wash your hands and, for the love of all, wear a mask.