Personal Finance

Building up middle class will be a goal. How she may do it

Published

4 months ago

July 31, 2024

Vice President and 2024 Democratic presidential candidate Kamala Harris speaks at a campaign event in Atlanta, Georgia, on July 30, 2024.

Elijah Nouvelage | Afp | Getty Images

“Building up the middle class will be a defining goal of my presidency,” Vice President Kamala Harris said at a political event in Atlanta on Tuesday evening.

“When our middle class is strong, American is strong,” the de facto Democratic presidential nominee said to the crowd of more than 10,000 supporters.

“And to keep our middle class strong, families need relief from the high cost of living so that they have a chance, not to just to get by, but to get ahead,” Harris added.

Here’s a look at how Harris may make that happen, based on the policies she advocated for during her first presidential bid in 2020 and as a senator.

One of Harris’ signature proposals as senator — known as the LIFT the Middle Class Act, or Livable Incomes for Families Today — would have provided an annual tax credit of up to $3,000 per person (or $6,000 per couple) for lower- and middle-income workers, on top of the benefits they already receive.

The size of the credit would have amounted to “significant tax relief,” according to the Committee for a Responsible Federal Budget.

The Harris campaign did not immediately respond to CNBC’s request for comment.

How the LIFT Act could look today

Since the LIFT Act was first proposed in 2018, the cost of living has only skyrocketed, hitting working-class Americans especially hard.

For these households, “real incomes have declined or remained flat due to inflation,” Tomas Philipson, former chair of the White House Council of Economic Advisers, told CNBC. That makes many workers feel less confident about their financial standing — and less satisfied with President Joe Biden’s handling of the economy.

At the same time, the rise of artificial intelligence has stoked fears about long-term job security.

In that context, “there’s a good rationale” for refloating a tax credit for those making under a certain income threshold, according to Laura Veldkamp, a professor of finance and economics at Columbia University Business School.

“A lot of people are asking the question, ‘Will AI take my job?’ There are people whose hard-earned skills could be obsolete,” she said. “One way to deal with that is to have more social insurance.”

But a tax credit like LIFT would also be extremely costly, according to Tax Policy Center estimates from 2018 and 2019.

To help cover the tab for the additional financial support, Harris at the time proposed repealing provisions of the Tax Cuts and Jobs Act for taxpayers earning more than $100,000.

However, funding such a tax credit now could be tough amid growing concerns over the federal budget deficit. Harris will also need to address trillions of expiring tax cuts enacted by former President Donald Trump before 2025.

How the LIFT Act could support renters

A present-day version of the LIFT Act may benefit renters the most, as many are part of the income category the tax credit is targeting, according to Francesco D’Acunto, an associate professor of finance at Georgetown University.

D’Acunto and other experts suggest the LIFT Act might even be a better aid than the 5% rent cap proposal Biden unveiled on July 16. That proposal calls on Congress to cap rent increases from landlords with 50 existing units or more at 5% or risk losing federal tax breaks.

Harris also supported the idea of rent caps at the campaign rally in Atlanta: “We will take on corporate landlords and cap unfair rent increases.”

However economists have found that such policies inadvertently bring down the available supply of rental units. And rent-control policies could further affect an already, relatively short supply, according to a report by the Federal Reserve published in February.

Rental vacancy rates, or the percentage of all units available for rent, measure the tightness of rental markets; the higher the vacancy rate, the easier it is to find housing, per the Fed.

In 2021, the overall vacancy rate slid to 5.6%, the lowest level since 1984, the central bank found. Supply has since rebounded and plateaued at 6.6% in April, per Census data via the Fed.

While the rent cap may lead consumers to believe prices will not increase significantly, it could have negative side effects, such as landlords taking their properties off the rental market, said Karl Widerquist, an economist and professor of philosophy at Georgetown University.

Plus, landlords who lose those federal tax breaks will still be able to raise rents, said Jacob Channel, a senior economist at LendingTree.

The advantage of the LIFT tax credit, said D’Acunto, is that it doesn’t create the same market distortions the rent cap would ignite. “But instead now on the side of the renter, we are actually very directly helping them to defray the effects of rent inflation,” he said.

Adds Widerquist: “We very often give tax benefits to all homeowners in the name of making it more affordable for people to become homeowners, and we don’t give a similar tax break to people who are paying rent. Those are the people who are struggling to become owners.”

Child tax credit is a ‘huge priority’ for Democrats

LIFT was first proposed years before Congress temporarily expanded the child tax credit during the Covid-19 pandemic, which could now be a bigger priority, experts say.

The American Rescue Plan boosted the child tax credit to $3,000 from $2,000, with an extra $600 for children under age 6 for 2021, and families received up to half upfront via monthly payments. Harris described the child tax credit changes as one of the “most important” and “most impactful” parts of the legislation in a 2021 speech.

The child poverty rate plunged to a historic low of 5.2% in 2021, largely due to the expansion, a Columbia University analysis found. Then in 2022, the rate more than doubled to 12.4% after pandemic relief expired, according to the U.S. Census Bureau.

Harris considers VP picks and fundraising potential

“Whereas the last administration gave tax cuts to billionaires, we gave tax cuts to families through the child tax credit, which cut child poverty in America by half,” Harris said at a political event in North Carolina in late July, before Biden left the race.

Biden’s fiscal year 2025 budget aimed to restore the 2021 child tax credit increase and House lawmakers in January passed a bipartisan tax package, which included a child tax credit expansion. The Senate has scheduled a procedural vote for the bill on Thursday, which will force lawmakers to take a stand on the issue ahead of November.

The enhanced tax break is “a huge priority for Democrats,” said Garrett Watson, senior policy analyst and modeling manager at the Tax Foundation.

Still, it’s unclear whether Harris, now the clear front-runner for the nomination, will renew calls for LIFT or focus on the child tax credit, which has a different design but a similar goal, he said.

“It’s very hard to say whether they would revisit specific policy options from so long ago,” said Columbia Business School economics professor Brett House.

For now, “there are other cultural and political issues that are going to dominate.”

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Personal Finance

How remote work can help you travel this holiday season

Published

10 hours ago

November 17, 2024

Business Finance News

Baona | E+ | Getty Images

Americans are determined to travel this holiday season — and certain workarounds are helping them take those trips.

The ability to work remotely is a major leg up when planning out itineraries.

About 49% of employed travelers are “laptop luggers” — those who plan to work at some point on their holiday vacation — up from 34% last year, according to the Deloitte holiday travel survey.

This flexibility allows workers to take trips they might not otherwise, or stretch their trips for longer, according to the survey.

While there are more laptop luggers across most age groups and income levels, Gen Zers, which Deloitte defines as those born between 1997 and 2012, and high earners make up the highest shares, at 58% and 52%, respectively, according to the survey.

Deloitte polled 4,074 American adults in September. Of that group, 2,005 were identified as holiday travelers.

The change in laptop luggers is “a pretty high jump. It’s almost across all income levels and age groups,” said Eileen Crowley, vice chair and U.S. transportation, hospitality and services attest leader at Deloitte.

Since the pandemic, remote work has become a priority for job seekers, said Julia Pollak, chief economist at ZipRecruiter.

In the third quarter, 51% of surveyed job seekers said the ability to work from wherever they want is a top reason for remote jobs, up from 40.8% in the first quarter of 2022, according to ZipRecruiter data.

“The value to U.S. workers of being able to work from anywhere has clearly grown over the course of the great remote work experiment,” she said.

In addition to working during their trip, travelers are coming up with other workarounds such as driving instead of flying or cutting back on other expenses, experts said.

“People are willing to cut corners to save money, but they don’t want to skip the trip entirely,” said Ted Rossman, an industry analyst at Bankrate.

Who’s spending on holiday travel this year

High earners are driving holiday travel and spending trends this year, according to experts.

When it comes to holiday travel, 52% of shoppers with incomes of $100,000 or more said they can “easily afford” that expense, according to Morning Consult, a survey research firm. That is the highest share compared with mid- to low-income groups.

Bloomberg | Bloomberg | Getty Images

“Higher-income consumers are not nearly as price sensitive,” Stacy Francis, president and CEO of Francis Financial, a wealth management, financial planning and divorce financial planning firm in New York City, recently told CNBC.

“They’re not nearly as budget conscious as people in lower-wage-earning brackets,” said Francis, a member of CNBC’s Financial Advisor Council.

Among generational groups, millennials, or those born between 1980 and 1996, have the highest budgets and longest travel planned. According to the report, millennials plan to take about 2.6 trips over the course of the holiday season and spend on average $3,927, per the Deloitte survey.

What’s making holiday travel possible this year

More than 4 in 5 holiday travelers, 83%, are finding ways to save money this holiday season, such as driving instead of flying, according to Bankrate.

“Most of these people are still traveling, they’re just doing so differently to cut some costs,” Rossman said.

Separately, about 50% of respondents are cutting back on other expenses and 49% are picking up discounts and deals, according to the 2024 Holiday Travel Outlook by Hopper, a travel site.

Among other strategies, 22% plan to travel on off-peak days and 21% are using credit card points or miles to cover some of the cost, the Hopper report found.

If you do plan to pull out your laptop and work during a holiday vacation, make sure to review your company’s rules around remote work, said Pollak. Some companies require employees to work from their home, from within the company’s home state or within the U.S. unless otherwise authorized.

“You risk getting your access shut off, being punished or even having your employment terminated if you try to work from elsewhere,” Pollak said.

Touch base with your manager or director about the idea as well, she said: “Some managers just care that you’re getting the job done and aren’t concerned how.”

Finally, you want to make sure the location you plan to work from has a strong electric grid or service and Wi-Fi is reliable.

“If you’re on the hook for work, make sure you are somewhere where you can get it done,” Pollak said.

Spending on experiences such as travel and concerts spiked after pandemic-era lockdowns and restrictions because of pent-up demand from Americans, experts say.

Yet even after several years, travel “seems to be something that’s sticking,” said Deloitte’s Crowley: “People are placing value and making room in their budgets for travel.”

Personal Finance

Why many young adults in the U.S. are still living with their parents

Published

11 hours ago

November 17, 2024

Business Finance News

Approximately 1 in 3 U.S. adults ages 18 to 34 live in their parents’ home, according to U.S. Census Bureau data.

The pandemic caused more young adults to return home or remain living with their parents into their late 20s and 30s, but aside from that spike, the numbers have remained fairly consistent in recent years.

Pre-pandemic, the most recent surge in the share of 18- to 34-year-olds living with their parents occurred between 2005 and 2015, according to data from the Census Bureau.

“Those were the times coming [during] the Great Recession and coming out of the Great Recession, and there were a lot of media narratives at the time about millennials eating too much avocado toast to live on their own,” said Joanne Hsu, a research associate professor at the University of Michigan who co-authored a 2015 study on “boomerang” kids for the Federal Reserve.

“What we found was that part of the reason we see this escalation of young adults not leaving the nest or returning to the nest is this idea that it was harder and harder for them to weather shocks,” Hsu said.

Economic shocks are significant and unexpected events that disrupt financial stability and markets, which then affect households’ income, employment and debt levels. The 2008 financial crisis, the Great Recession and the pandemic are all examples of economic shocks.

More than half of Gen Z adults say they don’t make enough money to live the life they want due to the high cost of living, according to a 2024 survey from Bank of America. A significant number of millennials and Gen Z adults lack emergency savings.

‘Why rent and give my money to someone else?’

Victoria Franklin, left, has lived with her mother, Terilyn Franklin, right, in Oceanport, New Jersey, since she graduated from college in 2019.

Natalie Rice | CNBC

Victoria Franklin, 27, moved back to her mom’s house in the summer of 2019 after graduating from college to search for a job in business administration.

“I ended up bartending and waitressing until October [of 2019], where I got my first offer,” Franklin said. “So it did take a little bit longer than I expected.”

She found a job in her field in New York City, which required a two-hour commute from her mother’s home on the Jersey Shore.

“I thought, you know, in six months or so, I’ll move into the city, be closer to the job,” Franklin said. “And the pandemic threw a wrench in those plans.”

Franklin decided to continue living at her mom’s house after switching to a fully remote job in fall 2023.

“My mentality is why rent and give my money to someone else when I can start to own?” Franklin said.

Franklin said she’s saving between 40% and 50% of her income, with “a big chunk” allocated toward a down payment on a house.

While living with parents can provide personal financial benefits, experts say this trend can negatively affect the economy.

“We do also have a situation that what is really good for an individual person or an individual family is not necessarily good for the entire macro economy,” Hsu said. “One of the big boosts to consumer spending is when people form households.”

The Federal Reserve estimated in a 2019 paper that young adults who move out of their parents’ home would spend about $13,000 more per year on things such as housing, food and transportation.

Watch the video above to learn more about why the trend of young adults living with their parents is continuing and what it means for the economy.

Personal Finance

Black Friday deals and discounts to expect this season

Published

1 day ago

November 16, 2024

Business Finance News

A customer visits Macy’s Herald Square store in New York City during early morning Black Friday sales, Nov. 24, 2023.

Kena Betancur | Getty Images

Typically, the five days beginning Thanksgiving Day and ending Cyber Monday are some of the busiest shopping days of the year.

This year, the number of people shopping in stores and online during that period could hit a new record, according to the National Retail Federation’s annual survey.

But consumers trying to make the most of the Black Friday sales may not be getting the best prices of the season.

According to WalletHub’s 2023 Best Things to Buy on Black Friday report, 35% of items at major retailers offered no savings compared with their pre-Black Friday prices. The site compared Black Friday advertisements against prices on Amazon earlier that fall.

“Some Black Friday deals are misleading as retailers may inflate original prices to make a deal look like a better value,” said consumer savings expert Andrea Woroch.

This year, in particular, some of the deals are already as good as they are going to get.

“Those holidays have gotten a little watered down because retailers want to maximize the selling days,” said Adam Davis, managing director at Wells Fargo Retail Finance.

“Compounding the importance of stretching the holiday season, retailers are facing a shorter selling season between Thanksgiving and Christmas — almost a week shorter in 2024,” he said. “That will force the retailer’s hand to be pretty promotional in November.”

Concerns about shipping

There’s another good reason to shop early.

Consumers are increasingly concerned that their online orders may not arrive in time for the holiday — and rightfully so.

DHL Supply Chain’s new CEO for North America, Patrick Kelleher, recently told CNBC that items may arrive later than in years past, especially those ordered around big dates such as Black Friday and Cyber Monday.

Retailers plan to deliver your holiday deals a little slower this year

In a period of such high volume, third-party shippers are particularly strained, according to Lauren Beitelspacher, a professor of marketing at Babson College. An ongoing labor shortage also means that some companies simply cannot hire enough workers to sort, transport and deliver packages on time.

“We are very spoiled; we got to the point where we think of something we want and it magically appears,” Beitelspacher said. But at the same time, “we’ve learned how fragile the supply chain is.”

When there are more packages to ship, shipping times increase, which can also boost the chance they may get damaged, lost or stolen en route — not to mention the risk of “porch piracy” once an item is delivered.

What discounts to expect on Black Friday

“You are easily going to see 20% to 30% off,” Davis said — but “not necessarily storewide.”

Depending on the retailer, some markdowns could be up to 50%, according to Beitelspacher. However, premium brands — including high-end activewear companies such as Nike, Alo or Lululemon — likely will not discount more than 20% or 30%, she said. “It’s a fine balance with maintaining the premium brand integrity and offering promotions.”

As in previous years, these companies are aware of how price sensitive consumers have become.

“The holidays are a time people want to treat themselves, but they also want to make their dollar last longer,” Beitelspacher said.

To that end, retailers will also try to lure shoppers to spend with incentives, such as a free gift card with a minimum purchase, Woroch said. “Many stores will also offer bonus rewards when you spend a certain amount on Black Friday.”

What not to buy on Black Friday

Typically, Black Friday is a great time to find rock-bottom prices on fall clothing — including flannels, denim, coats and accessories — as well as televisions and consumer electronics.

But hold off on beauty and footwear, which are typically better buys on Cyber Monday, Woroch said.

For those planning a trip, “Travel Tuesday” is a good time to snag discounts on airfares, cruises and tour packages, with many hotels offering 20% to 30% off best available rates. Travelers can check out Travel Tuesday deals from 2023 to get an idea of what to expect this year.

With toys, it could pay to hold out until the last two weeks of December, and holiday decorations are cheaper the last few days before Christmas or right after, according to Woroch.

Exercise equipment, linens and bedding tend to be marked down more during January’s “white sales,” she said, and furniture and mattress deals are often better over other holiday weekends throughout the year, such as Presidents’ Day, Memorial Day and Labor Day weekends.

How to get even lower prices

Woroch recommends using a price-tracking browser extension such as Honey or Camelizer to keep an eye on price changes and alert you when a price drops. Honey will also scan for applicable coupon codes.

If you are shopping in person, try the ShopSavvy app for price comparisons. If an item costs less at another store or popular site, often the retailer will match the price, Woroch said.

Further, stack discounts: Combining credit card rewards with coupon codes and a cash-back site such as CouponCabin.com will earn money back on those purchases. Then, take pictures of your receipts using the Fetch app and get points that can be redeemed for gift cards at retailers such as Walmart, Target and Amazon.

Finally, pay attention to price adjustment policies. “If an item you buy over Black Friday goes on sale for less shortly after, you may be able to request a price adjustment,” Woroch said. Some retailers such as Target have season-long policies that may apply to purchases made up until Dec. 25.