8 Federal Budget and Tax Plan Proposals that Could Impact Your Retirement

Today, Republican leaders in the House of Representatives unveiled a new tax plan.  They also recently introduced a budget proposal.  Neither of these bills are a foregone conclusion.  However, both the tax plan and budget have items that could significantly impact your retirement.
tax plan proposals and retirement
Here are 8 budget and tax proposals you might want to keep an eye on:

1. Cuts to Medicare and Medicaid

The House’s budget proposal calls for more than $4 trillion in cuts to mandatory spending like Social Security, Medicare and Medicaid.

NPR reports that: “the House budget would slash Medicaid — it says that via Medicaid cuts plus changes to Obamacare, it would save $1.5 trillion.”  Additionally, “The House bill would cut Medicare by $487 billion over 10 years.”

That is a lot less being spent on healthcare at a time when healthcare is getting more and more expensive.

2. Tax Brackets

The tax plan calls for moving from 7 different tax brackets to 4.

So far, experts are not clear on whether these new brackets — combined with changes to deductions and credits — will be good or bad news for most households.

3. 401ks

After much debate to lower deductible limits, it appears that contribution limits will remain the same.

This is relatively good news for retirement savers.  However, many experts are disappointed — even dismayed — that there are not additional savings incentives.  Many Americans are trying to save more for retirement, but most are not saving enough.

4. Mortgage Interest Deductions

The proposed tax plan calls for major changes to the mortgage interest deductions.  Currently, home owners are allowed to reduce their taxable income by the amount of interest they pay on their home loan.  The proposed tax plan would limit those deductions — for future home buyers — to $500,000.

So, if you already own your home, your tax situation does not change.

However, home equity probably represents a significant part of your personal wealth.  if you are counting on that equity in anyway — thinking about downsizing to release equity to help fund retirement, bequeathing your home as part of your estate, maybe buying a vacation home or anything related to real estate, then you should be aware that experts predict that this change will have a significant impact on the market.  It could possibly bring down home values, especially in areas with particularly high home values.

5. Other Tax Credits and Deductions

According to Forbes, “While the child tax credit is proposed to increase to $1,600 from $1,000 and the standard deduction doubles from $12,700 to $24,000 per family, the GOP simultaneously slashes medical expense, state income tax and property/casualty loss write-offs.”

Seniors are more likely to be negatively impacted by not being able to write off medical expenses, state income tax and property/casualty loss write-offs than they are to benefit from a child tax credit.

6. Estate Tax

It’s good news if you are really rich and want to maintain dynastic family wealth. They are raising limits on the estate tax and will eventually drop it altogether.  Over 6 years the estate tax exemption would go from $5.5 million to $11 million ($22.4 million per married couple) and then go away all together.

So, the much referred to “one percent” — the wealthiest among us — will be able to pass on tens (or even hundreds) of billions of dollars to their children tax free!   This is a huge gift to a very small number of households.

7. The Deficit

All of the old arguments for and against the deficit are being shouted again.  What is true though is that these budget and tax bills seem to significantly increase the deficit.

Is this a retirement issue?  I guess it depends on how you feel about your grandchildren and the future and how strongly you believe that these bills will increase economic growth in a challenging global marketplace.

8. Small Businesses and Big Corporations

The proposed tax plan gives a huge — 15% — reduction in corporate taxes.  Some say that this will stimulate new jobs and higher stock market returns and therefore benefit many.  However, most economists are dubious about this effect, believing that the corporations will simply get bigger and richer and that the average person will see very little benefit.

What the bill does for small business owners — many who are retirees or people near retirement — is less clear.

The National Federation of Independent Business, which represents small businesses, said it could not support the plan. “This bill leaves too many small businesses behind,” NFIB President Juanita Duggan said in a statement.

What Do You Think About These Proposals?

What do you think of the proposed tax and budget changes? Are you worried about your retirement? Will these changes make it better or worse?  Share your thoughts in the comments section below.

Additionally, if you care — one way or another — about any of these proposals, you can contact your Representative and Senators.

Representatives: You can find contact information for your representative on the United States House of Representatives web site.

Senators: On the United States Senate web site, in the upper left hand corner you can select your state and find information about how to phone or write your Senators.

Notes About the NewRetirement Retirement Planning Calculator and Proposed Budget and Tax Changes…

The NewRetirement retirement planning calculator is an award winning system for creating and maintaining a viable plan for your financial future.

Here are a few things to keep in mind and maybe tryout with regards to the tool and proposed legislation:

  • The tool is currently configured with today’s tax brackets.  If new brackets become law, the system will be updated to reflect this change.
  • The system allows you to set optimistic and pessimistic rates for housing inflation.  You might want to see if your plan changes dramatically if those were adjusted downward as is predicted will happen with the proposed tax changes.
  • The tax and budget proposals hope to stimulate economic growth from corporations.  You might want to see how much your overall retirement plan improves if you increase your rate of return on investments.

See how these proposed changes may impact your retirement plan

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