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What Trump and Biden tax policies could mean for your paycheck, tax return, investments and retirement savings



That’s weighty rhetoric, but it’s also intangible. How might the candidates affect the things you can see and hold, like a paystub, an income tax return or a portfolio statement?

A lot of people would like to know, polls suggest.

Almost 80% of registered voters told the Pew Research Center that the economy was a very important issue in this highly-charged election. Seventy-seven percent of voters told YouGov that domestic issues were most important; the economy was the second top priority behind the coronavirus outbreak and response.

The focus on finances puts tax policy front and center. The tax code’s rules are critical for a household’s budget and a government balance sheet — especially when the federal budget is projected to grow by almost $4 trillion in the wake of the pandemic.

Biden has a tax plan that will generate between $3.35 trillion and $4 trillion over 10 years, according to various estimates. The money mostly comes from America’s richest residents, who are well aware of the prospect.

Trump has a first-term record that includes the 2017 Tax Cuts and Jobs Act, an overhaul that reduced income tax rates while expanding some credits and exemptions as it capped others. Major features, like the paired-down income brackets and heightened estate tax exemption are currently set to expire at the end of 2025. Taxpayers paid almost $64 billion less in income taxes during the first year under the new tax rules than they did the year before that, IRS statistics show.

‘The basic Biden story is if you’re rich or if you’re a corporation, you’re going to pay more tax. … Trump is basically saying ‘we’re going to cut your taxes,’ and not telling anybody how.’

— Howard Gleckman, senior fellow at the Tax Policy Center

“The basic Biden story is if you’re rich or if you’re a corporation, you’re going to pay more tax. If you’re middle-income or lower-income, you’ll pay either what you pay now, or you’ll pay less depending on your specific circumstances,” said Howard Gleckman, senior fellow at the Tax Policy Center.

There are very few specifics, for now, on a second-term Trump administration tax plan, Gleckman added. “Trump is basically saying ‘We’re going to cut your taxes,’ and not telling anybody how.”

“With tax cuts and deregulation President Trump has fought to protect the paychecks of everyday Americans from an overburdensome federal government,” said Trump campaign spokesman Ken Farnaso. “Joe Biden wants to overturn that progress and tack on a $4 trillion tax hike and his version of a Green New Deal. Whether it be the payroll tax cut or the highly successful Tax Cuts and Jobs Act, President Trump has never stopped fighting to preserve our economic freedoms.”

A Biden campaign representative could not be immediately reached for comment.

Here’s a look at how the Trump administration and Biden campaign’s tax policies could affect paychecks, portfolios, income taxes and retirement savings.

What Trump and Biden tax policies mean for your paycheck

Before you get your paycheck, Uncle Sam takes a cut. These are payroll taxes and they consist of 6.2% that an employee pays into Social Security and 6.2% an employer pays for Social Security, combining for a 12.4% payment. The employer and employee also pay 1.45% apiece (a combined 2.9%) for Medicare taxes. Employees and employers currently pay the 12.4% only up to the first $137,700 a person earns.

Trump authorized employers to let their workers making less than $104,000 defer payment on their 6.2% tax obligation between September and December. Experts say a deferral means the employee has a bigger check now, but has to pay the taxes next year, on top of the payroll taxes that come back on. Trump would like to see if lawmakers can pass a bill that would forgive the deferred taxes. Some small businesses have said the deferral isn’t worth the administrative hassle.

Biden wants the 12.4% Social Security tax to kick back in for incomes above $400,000. The move takes square aim at the country’s highest earners. For example, the average salary for a CEO at the 350 largest publicly-traded companies was $1.325 million (as part of a $21.28 million projected pay package), according to the left-leaning Economic Policy Institute.

What Trump and Biden tax policies mean for your income tax return

Biden wants to put the top income tax bracket rate back to the Obama-era’s 39.6% rate from its current 37% rate. “I will raise taxes for anybody making over $400,000. The very wealthy should pay a fair share. Corporations should pay a fair share,” Biden has said.

People with adjusted gross incomes at or below $400,000 would have a 0.9% average decrease in after-tax income under Biden’s plan, while people making that threshold would see a 17.7% after-tax income drop, according to a budget model from the University of Pennsylvania Wharton School of Business.

Though Biden says he wouldn’t raise taxes on people below the $400,000 threshold, the Wharton figure factors in estimated indirect effects of lower investment returns and wages because of Biden’s corporate tax hike, which puts the rate at 28%, from 21%.

Biden would also cap the value of itemized deductions. When taxpayers prepare their taxes, they can choose between a standard deduction and an itemized one that’s comprised of things like state and local taxes expenses, mortgage interest, charitable contributions and medical expenses.

Rich households overwhelmingly opt for the latter, research shows. Forty-three percent of taxpayers making between $50,000 and $100,000 itemized their deductions in 2018 while 80% of households earning between $100,000 and $500,000 did the same, according to the Tax Policy Center.

Specifically, Biden would cap the value of the itemized deduction at 28%. That cap would apply even if a taxpayer was taxed at a higher rate, Gleckman noted. With an across-the-board cap, Biden is trying to avoid picking and choosing which deductions deserve more or less of a break.

Biden is limiting the power of write-offs at the top of the income ladder, but he’s expanding them farther down. For example, he’s calling for a maximum $15,000 first-time homebuyer’s credit, a tax credit for renters and a larger tax credit for children. (The Trump administration temporarily doubled the child credit from $1,000 to $2,000. Biden would turn the credit up to $4,000.)

Trump has not yet offered specifics on his plan for income taxes in a second term, observers note. But White House budgets for fiscal years 2019 through 2021 assume the income tax rates will become permanent, experts point out, including those at the consulting firm Deloitte. Trump has also said he’s considering an income tax cut for middle-income families.

Trump may have not have many tax proposal specifics right now, but he does have a tax record to run on — for better or worse depending on who you ask.

The 2017 tax code changes created tax cuts that helped the wealthy more than anyone else, critics say. A household making less than $50,000 sees a 0.5% after-tax income increase, in one UCLA Law School professor’s analysis. A millionaire’s household has a 3% to 5% after-tax income jump, he said.

The 2017 tax code changes simplified the tax code and gave the average taxpayer in every state and congressional district a tax cut, according to the Heritage Foundation, a right-leaning think tank. Now it’s crucial to make the rates a permanent feature of the tax code, tax experts at the organization say.

What Trump and Biden tax policies mean for your investment portfolio

Biden wants to tax capital gains at 39.6% (his proposed top rate for ordinary income) for people who make more than $1 million. Right now, the rate is set at 20%, along with 3.8% for the net investment income tax. Even the prospect of a rate hike is accelerating some high-priced deals to avoid even the potential for a hike.

Capital gains don’t only apply to appreciating stock sales, but it’s worth noting there are many people who own stock and make less than $1 million. Fifty-five percent of Americans said they owned stock, according to a Gallup poll this year. Within that segment, 84% of people making over $100,000 reported having stock while 65% of people making between $40,000 and $99,999 said they owned stock.

Trump has said he’s “looking very seriously at a capital-gains tax cut.” Another potential move, his administration said, is indexing the basis for capital gains.

This adjusts a gain for inflation so that a taxpayer is only paying tax on appreciated value, not prices that bulge because of big-picture economic forces. Trump is also proposing to broaden the “opportunity zones,” created in the Tax Cuts and Jobs Act. This is a program designed to encourage investment in “economically distressed” places; investors can receive preferential tax treatment

What Trump and Biden tax policies mean for your retirement account

Trump has not sketched out second-term tax proposal on retirement savings, according to experts at Deloitte. But the president has already enacted the SECURE Act. The law lets more employers provide annuities as a 401(k) investment option. The law also pushes the required minimum distribution age from age 70.5 to age 72 and gives tax credits to businesses that automatically enroll workers in their retirement plan.

Biden is calling for a 26% refundable tax credit that applies for each dollar contributed to an IRA or 401(k). “The tax credit would be deposited into the taxpayer’s retirement account as a matching contribution,” explained Garrett Watson, Senior Policy Analyst at the right-leaning Tax Foundation.

Under current law, 401(k) contributions come right off the top of a person’s taxable income. But the tax benefit accrues more to the higher earners taxed at higher rates. “Compared to current law, the flat credit would provide a larger benefit to lower-income earners and reduce the benefit to higher-income earners,” Watson wrote.

Biden’s plan would not touch contribution limits or affect the rules on Roth IRAs, where after-tax money goes into the account and is withdrawn tax-free.

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‘I could live on my Social Security and still save money’: This 66-year-old left Chicago for ‘calming’ Costa Rica — where he now plans to live indefinitely




Editor’s note: This article was first published in September 2019.

A school break changed 66-year-old Martin Farber’s life forever.

In 2007, his daughter — who at the time was attending Illinois State University — decided she wanted to spend a college holiday volunteering in Costa Rica and staying with a local family, he explains. She came home raving about the experience, so, in 2008, Farber — who at the time was living in Evanston, Ill., just outside Chicago, and selling cars — took his first trip there.

“It was a big surprise to me — bumpy roads, dogs barking in the streets,” he says. “I wasn’t enamored at first.”

But as his daughter began traveling there more and eventually moved there for a year, he took additional trips to Costa Rica. It quickly grew on him — in particular, the people. “The Costa Rican people are warm, open and friendly. I felt less invisible in a strange country in a strange town where I didn’t speak the language than I did in Evanston.”

And the more time he spent there, the more it impacted him: “On one of my trips there, I thought: My daughter’s life makes more sense than mine,” he says. “There was nothing wrong with my life, but I felt that my life was out of context with who I’d become. … I would have bills and make money to pay them, but that had ceased to be satisfying,” he recalls. “I knew I needed to change my life — there was no more joy in what I was doing.”

What’s more, when he’d return from his Costa Rica trips, people noticed. “I would come back, and my friends and therapist would say: You seem better after you go,” he says with a laugh.

A view from the hot springs near Martin Farber’s home in Costa Rica.

Martin Farber

So in 2014, he packed up and moved to Orosi — a picturesque, lush small town with waterfalls and hot springs a little over an hour’s drive from San Jose — promising himself he’d stay for two years. It’s been five, and he now plans to stay in Costa Rica indefinitely. (Though Farber notes that, to him, “it’s not a retirement; it’s a chance to lead a new and different life.”)

Here’s what his life is like, from costs to health care to residency to everyday life:

The cost: While many expats spend way more living in Costa Rica, Farber says: “I could live on my Social Security and still save money.” He says “a person can live on $1,200 per month, two people on $2,000.” The key, he says, is to live more like he does and as the Costa Ricans do — in a modest home, eating local food and purchasing local goods.

Indeed, Farber himself spends just $300 a month for rent (he rents a home from a friend who moved recently and gave him a good deal), roughly $225 a month on groceries and just $50 a month total on water and electricity (the temperate climate in Orosi means you rarely need heat or air conditioning). The veteran Volkswagen


salesman saves money by not owning a car (those over 65 ride municipal buses for free), which can be a significant expense in Costa Rica; for his cellphone, “I pay as I go … roughly $10 may last me a couple weeks or more,” he says, adding that “many people handle there their cellphones this way. You can get them recharged anywhere.”

His major expense is travel: He goes back to the U.S. to visit his mother in Florida several times a year and lately has spent part of the summer in Chicago helping out a friend with a dealership there. He also spends a good amount of money on health care. He says that while flights can be had for as little as $350 roundtrip during offseasons, the cost can be much higher the rest of the year.

In the saddle.

Martin Farber

Health care: Farber, who has permanent resident status in Costa Rica, says he pays about $90 per month to participate in the country’s health-care system — adding that the health care he’s received has been very good. (A 2018 study of health-care quality and access in more than 190 nations ranked Costa Rica No. 62.)

When he developed a detached retina, though, he paid for the procedure out of pocket so that he didn’t have to wait for the required surgery, he says — adding that the entire procedure cost him about $5,000. “I would have had to have waited four days,” he says, if he had not paid to expedite matters. “That might have been fine, but it might not.” And he adds that the quality of care depends on where you get it in the country.

Lifestyle: Though Farber says that he “moved here with no goals and no agenda,” he’s found plenty to do. “I take Spanish lessons two days a week for two hours a day. It’s been great. I never thought I would acquire a usable language in my 60s,” he says. He also rides his bike all around the area, does some writing and belongs to a community group that undertakes projects to improve the area.

And he often simply takes in nature, which he says has been an essential part of why he feels calmer and more relaxed in Costa Rica than in the U.S. “I live at 3,000 feet but in a valley surrounded by coffee fields and lime trees and water. At night, if I open the windows, I can hear the river rushing by,” he says. “It is very calming … hundreds of trees everywhere … you know the Earth is alive.”

The historic Iglesia de San José de Orosi.


Cons: “I don’t want to overglorify. It’s not without its problems,” Farber says of Costa Rica. “There are social problems and downsides.” He notes that crime and petty theft can be a problem (“I am cautious,” he says of his approach) and seem to have increased since he moved there, and adds that he misses out on some cultural things because of where he lives. And, he says with a laugh, “I can’t order Thai food at 9 at night.” But, he adds: “These are trade-offs — in the afternoon, I get to walk in the coffee fields and see flocks of parrots.”

Residency: To qualify for Costa Rica’s pensionado visa, expats must prove that they have a pension of at least $1,000 coming in each month. (Here are the details of that program.) Once you have lived in Costa Rica for three years, you can apply for permanent residency. Farber used a lawyer to help him figure out the ins and outs of residency options; his entire path to permanent residency took about a year, he says.

The bottom line: “After five years I am still amazed and surprised that I made the decision to lead a life I never thought I would,” he says. And while he may not stay in Orosi forever — “the town doesn’t have an ambulance, [and] I don’t know what it will be like to be 80 there,” he says — he does plan to stay in Costa Rica in no small part because of the people and sense of community. “I have the feeling that life is good here,” he says. “It’s hard sometimes, but we are all in it together.”

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