This Monday, President Donald J. Trump will make history as the second United States president ever to secure reelection in a non-continuous manner. Beyond the political drama, many are wondering how his second term will impact their finances.
One of Trump's policies that has garnered attention as of late are tariffs. A tariff is a tax levied on incoming goods at the border. Used as a protection tool, tariffs raise the price of imported goods, incentivizing citizens to buy less expensive, domestic items. Often cited as a policy of the past, tariffs in the current economy can cause prices to dramatically rise.
Trump is employing a tactic to shift the tax burden away from Americans, requiring foreign countries to bear it through tariffs. Tariffs are a distorting way to increase revenue, though, as they often provoke retaliation from other countries. This retaliation can result in higher prices for goods and services that must be imported from other nations. Furthermore, it can negatively impact trade from the U.S. to other countries, weakening our economy by reducing revenue.
What about Trump's tax plan? To understand what Trump might do in a second term, we can review his policies from the first. For the 2018 tax year, homeowners could deduct mortgage interest on loans up to $750,000. Additionally, the Trump tax plan increased the Child Tax Credit (CTC) to $2,000 per child. It also doubled the estate and gift tax exemption from $5.49 million in 2017 to $11.18 million. Currently, this amount has risen to $13.61 million.
Trump has proposed various tax initiatives for his second term in office, such as extending the Tax Cuts and Jobs Act (TCJA) from 2017, which reduced the corporate tax rate from 35% to 21%. Other proposals include exempting certain income types from taxes, reinstating state and local tax (SALT) deductions, and eliminating tax breaks for green energy programs. Many speculate that the tax policy in his second term will resemble that of his first.
Taking all of this into consideration, you could be looking at a potential spike in costs based on the imposed tariffs but see your tax deduction being lower than in the past. America awaits its 47th president and the policies that could shape their futures if implemented.
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