The gov has been rolling out plans to (re)build up the economy. They're not cheap. Think: the $1.9 trillion rescue package (hi, more stimulus payments). President Joe Biden's most recent proposal asks Congress for a $6 trillion budget for the next fiscal year. This would push federal spending to its highest sustained levels since WWII. Here's what that could mean for your wallet.
If you're wondering what could be in it for you…
Better gov-funded services. That's Biden's plan, anyway. On his agenda: improved roads, bridges, transit systems, and a cleaner energy grid. Plus more support for families. Like universal preschool, two years of free community college, paid family and medical leave, and an enhanced child tax credit. The goal: help Americans (you) save on education, childcare, and even car maintenance costs. Bye, potholes. We won't miss you.
Hope for a new normal. These spending initiatives aren't just about saving money day-to-day. Ultimately, Biden says his plan is to help get Americans back to work and kids safely back in school (full-time and IRL) – two keys to reaching a full economic recovery. One analysis of a Census Bureau survey showed that stimulus checks really did help American families cope with food insecurity, financial instability, and mental health.
If you're curious whether taxes will go up…
Know it's a possibility. Raising taxes is one way the gov pays for its new projects. And Biden has proposed increasing taxes to cover his spending plans. But he says he's focusing on collecting revenue from corporations and the wealthiest Americans. Example: the American Families Plan would raise the top marginal tax rate from 37% to 39.6%. And the infrastructure plan calls for bumping the top corporate tax rate from 21% to 28%, though there have also been discussions about imposing a minimum tax rate on large corporations instead.
Minimize your own tax bill. Even if you're not in that top tax bracket (or a corporation), you may see your taxes go up if the tax cuts enacted in 2017 expire in 2025 as scheduled. No matter what happens with the tax code, claiming all the tax credits and deductions you're eligible for is a smart move.
If you're worried about picking up the tab in other ways…
Budget for rising prices. One potential downside of more gov spending: inflation. That's the gradual increase in the cost of everyday items and the decrease in your money's purchasing power. Because when the gov circulates more money, your dollars lose value. Also, if corporations pay higher taxes, they could offset those costs by raising prices. Look at all your regular monthly expenses to see what you can live without or downgrade. And look for more affordable alternatives to the everyday purchases you can't live without.
Invest more for retirement. Another possible negative to increased spending: a bigger federal budget deficit, which can be a drag on the economy over the long term. When the gov tries to mind the gap between what it forks out vs. what it brings in, it could mean cutbacks on certain public programs like Social Security. Making it even more important to DIY a plan for retirement and save as much as you can for your post 9-to-5 life. Step one: figure out how much you'll need. Step two: start investing.
Are there other budget proposals in the mix?
In progress. The proposed White House budget is considered a starting point for negotiations. The GOP has criticized Biden's plan for being too costly and says it'll bring the US to dangerous levels of debt, which can leave the nation vulnerable in case of an emergency. And will bring about higher inflation and taxes, which they argue can be especially harmful for the overall economy.
ICYMI, the US gov's been making it rain and wants to keep the spending party going. (Whether it'll bring on the economic growth they're hoping for is still TBD, experts say.) You can't control what the gov does with its money, but you can be smarter with yours. By saving where you can and preparing for the future, you can be ready for whatever happens when Uncle Sam changes up his spending habits.
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