President Joe Biden proposed his $6 trillion budget on Friday, outlining his plan to rebuild America's infrastructure. It focuses on funding affordable housing, education and health care — while raising capital gains taxes on high-earning households.
If passed, the budget would make sweeping changes to how the federal government issues and collects funding, and some of these changes might affect your personal finances. Make sure your decisions are well-informed by utilizing an online financial marketplace like Credible.
Here's what you should keep your eye on, from college debt to mortgage forbearance.
Taxes will go up for the wealthiest Americans
Biden’s proposed budget aims to eliminate tax loopholes that "reward wealth over work," such as the lower capital gains tax. Financial planners say that if this version of the budget passes, Americans making more than $400,000 per year will see higher taxes on income, assets and investments. Households earning more than $1 million would pay a 43.4% tax on capital gains.
Devin Pope, a certified financial planner (CFP) in Salt Lake City, Utah, said that this could "hurt the entrepreneurial spirit our country has embraced for decades."
The capital gains tax would be retroactive, taking effect in late April. "It doesn't allow for people to plan ahead or prepare for what is coming," said Monica Dwyer, a CFP and wealth advisor based out of West Chester, Ohio.
"Had we known this was coming, clients and I would have done some trades to take advantage of the lower tax last year," said Rose Swanger, a CFP in Knoxville, Tenn. "It may be a moot point now, but generally speaking, clients and I will be very careful of how we invest in their taxable account during the next few years."
The future of investing for high-income earners may shift toward tax-friendly retirement accounts over other investment accounts.
More affordable housing will be added to the market
In an effort to address the affordable housing crisis, Biden's budget allocates nearly $212 billion over the next 10 years to build, preserve and retrofit over two million homes and commercial buildings. Here are a few of the proposals and how much they will cost by 2031:
- Retrofit Housing and Urban Development multifamily properties: $500 million
- Invest in the public housing stock: $40 billion
- Construct housing for the elderly: $1.96 billion
- Stimulate additional rural housing grants, loans and loan guarantees: $2 billion
- Expanding the Low-income Housing Tax Credit: $31.9 billion
Despite efforts to increase access to affordable housing, it’s unlikely that home prices will decrease anytime soon, even if this budget is adopted. Take advantage of low mortgage rates and rising home equity with a cash-out refinance. Explore your options on Credible.
Students would have access to two years of tuition-free community college
The rising cost of getting a college education has led to many graduates looking into alternatives to a four-year university, such as community colleges and trade schools. Biden’s proposed budget would make community college tuition-free for two years.
Funding free community college would cost $55.7 billion between 2022 and 2026, and $108.5 billion by 2031.
FHA borrowers may see extended COVID-19 pandemic relief
The Federal Housing Agency (FHA) will continue to "provide urgent relief to homeowners suffering financially due to the COVID-19 pandemic," the budget states. However, the document doesn’t state specifics for this plan, and the deadline for homeowners to request COVID-19 forbearance from their mortgage servicer is still June 30, 2021.
COVID-19 mortgage forbearance can be a lifeline for mortgagors who can’t afford to make any monthly mortgage payment, but it may be a better long-term option for borrowers to refinance since rates are historically low.
If you’re thinking about refinancing your mortgage to save some money, shop around for the lowest possible mortgage rate for your situation on Credible. Doing so won't affect your credit score.
Your federal student loans won’t be forgiven anytime soon
One thing missing from Biden’s budget proposal? Student loan forgiveness.
The president has supported canceling up to $10,000 worth of student loan debt for every borrower. He says he believes it’s important for Congress to enact this legislation rather than rely on an executive order. However, Biden’s budget proposal to Congress – which allocates federal spending for the next 10 years – doesn’t include canceling college debt. This may leave some borrowers wondering what to do with their student loan balances.
Federal student loan borrowers can continue taking advantage of the zero-interest forbearance period, which expires on Sept. 30, 2021. Borrowers can still make payments during this time to decrease the principal balance of the loan. Since interest doesn’t accrue during this time, though, borrowers might consider using the extra cash to pay down high-interest debt or save for future student loan payments.
Private student loan borrowers aren’t likely to be affected by college debt forgiveness, and they’re not protected by the federal forbearance moratorium. These borrowers should continue making payments and consider refinancing their student loans while rates are historically low.
Student loan refinancing may help you save thousands of dollars on your college debt. Borrowers saved $17,344 on average when they refinanced to a shorter-term loan on Credible. A student loan refinancing calculator can help you decide if this is the right move for you.
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