Personal Finance

Harris calls for child tax credit of up to $6,000 for newborn children

Published

8 months ago

August 16, 2024

U.S. Vice President Kamala Harris speaks at an event with U.S. President Joe Biden (not pictured) in Prince George’s County, Maryland, U.S., August 15, 2024.

Elizabeth Frantz | Reuters

Vice President Kamala Harris on Friday unveiled an economic plan, including an expanded child tax credit worth up to $6,000 in total tax relief for families with newborn children.

The Democratic presidential nominee’s plan aims to restore the higher child tax credit enacted via the American Rescue Plan in 2021, which provided a maximum credit of up to $3,600 per child, according to a fact sheet from the campaign.

The 2021 credit was up to $3,000 or $3,600, depending on the child’s age and family’s income. Harris’ proposed tax break would increase for middle- to lower-income families for one year after a child is born.

“We will provide $6,000 in tax relief to families during the first year of a child’s life,” said Harris during a policy speech in Raleigh, North Carolina.

The plan comes less than one week after Sen. JD Vance of Ohio, former President Donald Trump‘s GOP running mate, floated a $5,000 child tax credit.

A Trump campaign official told CNBC: “Trump will consider a significant expansion of the child tax credit that applies to American families.”

While Harris has followed President Joe Biden’s footsteps with her proposed child tax credit expansion, the $2,400 bonus for newborns is “different and somewhat surprising,” said Kyle Pomerleau, senior fellow and federal tax expert with the American Enterprise Institute. “That, to me, sounds very much like a response to JD Vance.”

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

‘Bipartisan momentum’ for the child tax credit

Senate Republicans earlier in August blocked an expanded child tax credit that passed in the House with broad support. However, Republican lawmakers are expected to revisit the measure after the election.

“There is bipartisan momentum behind expanding the [child tax credit],” said Andrew Lautz, associate director for the Bipartisan Policy Center’s economic policy program.

There is bipartisan momentum behind expanding the [child tax credit].

Andrew Lautz

Associate director for the Bipartisan Policy Center’s economic policy program

The size of the expansion and future credit design will hinge on which party controls the White House and Congress. But the House-passed bill and Senate negotiations could be a starting point, Lautz said.

Future child tax credit expiration

Without action from Congress, the maximum child tax credit will drop from $2,000 to $1,000 once Trump’s 2017 tax cuts expire after 2025.

The American Rescue Plan temporarily increased the maximum child tax credit from $2,000 to either $3,000 or $3,600, depending on the child’s age. Families received up to half via monthly payments for 2021.

The child poverty rate fell to a historic low of 5.2% in 2021, largely due to the credit’s expansion, according to a Columbia University analysis.

If there’s a future child tax credit expansion, Pomerleau doesn’t expect it to be as large as the tax break that Harris or Vance have proposed.

Amid the federal budget deficit, lawmakers are already wrestling with trillions in expiring tax cuts that are “prohibitively expensive,” he said.

Expanding the child tax credit to $3,000 or $3,600 could cost an estimated $1.1 trillion over a decade, according to the Committee for a Responsible Federal Budget. Meanwhile, the expansion to $6,000 for newborns could cost $100 billion.

The Harris campaign’s economic plan fact sheet said she would fulfill her “commitment to fiscal responsibility,” including calls for higher taxes on wealthy Americans and large corporations.

Kamala Harris' economic plan so far is aimed squarely at household costs: Brookings' Ben Harris

Personal Finance

Here’s why ‘dead’ investors outperform the living

Published

14 hours ago

April 5, 2025

Business Finance News

Andrew Fox | The Image Bank | Getty Images

“Dead” investors often beat the living — at least, when it comes to investment returns.

A “dead” investor refers to an inactive trader who adopts a “buy and hold” investment strategy. This often leads to better returns than active trading, which generally incurs higher costs and taxes and stems from impulsive, emotional decision-making, experts said.

Doing nothing, it turns out, generally yields better results for the average investor than taking a more active role in one’s portfolio, according to investment experts.

The “biggest threat” to investor returns is human behavior, not government policy or company actions, said Brad Klontz, a certified financial planner and financial psychologist.

“It’s them selling [investments] when they’re in a panic state, and conversely, buying when they’re all excited,” said Klontz, the managing principal of YMW Advisors in Boulder, Colorado, and a member of CNBC’s Advisor Council.

“We are our own worst enemy, and it’s why dead investors outperform the living,” he said.

Why returns fall short

Dead investors continue to “own” their stocks through ups and downs.

Historically, stocks have always recovered after a downturn — and have gone on to reach new heights every single time, Klontz said.

Data shows how detrimental bad habits can be relative to the buy-and-hold investor.

The average stock investor’s return lagged the S&P 500 stock index by 5.5 percentage points in 2023, according to DALBAR, which conducts an annual investor behavior study. (The average investor earned about 21% while the S&P 500 returned 26%, DALBAR said.)

The theme plays out over longer time horizons, too.

The average U.S. mutual fund and exchange-traded fund investor earned 6.3% per year during the decade from 2014 to 2023, according to Morningstar. However, the average fund had a 7.3% total return over that period, it found.

That gap is “significant,” wrote Jeffrey Ptak, managing director for Morningstar Research Services.

It means investors lost out on about 15% of the returns their funds generated over 10 years, he wrote. That gap is consistent with returns from earlier periods, he said.

“If you buy high and sell low, your return will lag the buy-and-hold return,” Ptak wrote. “That’s why your return fell short.”

Wired to run with the herd

Emotional impulses to sell during downturns or buy into certain categories when they’re peaking (think meme stocks, crypto or gold) make sense when considering human evolution, experts said.

“We’re wired to actually run with the herd,” Klontz said. “Our approach to investing is actually psychologically the absolute wrong way to invest, but we’re wired to do it that way.”

Market moves can also trigger a fight-or-flight response, said Barry Ritholtz, the chairman and chief investment officer of Ritholtz Wealth Management.

“We evolved to survive and adapt on the savanna, and our intuition … wants us to make an immediate emotional response,” Ritholtz said. “That immediate response never has a good outcome in the financial markets.”

These behavioral mistakes can add up to major losses, experts say.

Consider a $10,000 investment in the S&P 500 from 2005 through 2024.

A buy-and-hold investor would have had almost $72,000 at the end of those 20 years, for a 10.4% average annual return, according to J.P. Morgan Asset Management. Meanwhile, missing the 10 best days in the market during that period would have more than halved the total, to $33,000, it found. So, by missing the best 20 days, an investor would have just $20,000.

Buy-and-hold doesn’t mean ‘do nothing’

Of course, investors shouldn’t actually do nothing.

Financial advisors often recommend basic steps like reviewing one’s asset allocation (ensuring it aligns with investment horizon and goals) and periodically rebalancing to maintain that mix of stocks and bonds.

There are funds that can automate these tasks for investors, like balanced funds and target-date funds.

These “all-in-one” funds are widely diversified and take care of “mundane” tasks like rebalancing, Ptak wrote. They require less transacting on investors’ part — and limiting transactions is a general key to success, he said.

“Less is more,” Ptak wrote.

(Experts do offer some caution: Be careful about holding such funds in non-retirement accounts for tax reasons.)

Routine also helps, according to Ptak. That means automating saving and investing to the extent possible, he wrote. Contributing to a 401(k) plan is a good example, he said, since workers make contributions each payroll period without thinking about it.

Personal Finance

As recession risk jumps, top financial pros share their best advice

Published

1 day ago

April 4, 2025

Business Finance News

Fg Trade | E+ | Getty Images

There is at least a 60% chance of recession if Trump's tariffs stick, says JPMorgan's David Kelly

Meanwhile, J.P. Morgan raised its odds for a U.S. and global recession to 60%, by year end, up from 40% previously.

“Disruptive U.S. policies has been recognized as the biggest risk to the global outlook all year,” J.P. Morgan strategists said in a research note on Thursday.

Allianz’s Chief Economic Advisor Mohamed El-Erian also warned on Friday that the risk of a U.S. recession “has become uncomfortably high.”

‘There is some nervous energy’

“There is some nervous energy there,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York, of the conversations he is having with his clients.

Even though stocks took a beating on Friday, “we advise them to focus on fundamentals and what they can control, which means maintaining a strong cash reserve and discipline around cash flow so that they can stay in the market and feel confident about taking advantage of buying opportunities,” said Boneparth, a member of the CNBC Financial Advisor Council.

Recession or not, maintaining a consistent cash flow and investment strategy is key, other experts say.

“The best way to manage these moments is to maximize your current and future selves is to block out noise that doesn’t apply to your plan,” said CFP Preston Cherry, founder and president of Concurrent Financial Planning in Green Bay, Wisconsin.

Letting emotions get in the way is one of “the greatest threats to life and money plans,” said Cherry, who is also a member of the CNBC Advisor Council.

When it comes to volatility tolerance, sharp drops in the market are to be expected, the advisors say.

“The stock market is unpredictable, but historically, there’s a trend in how the market recovers,” Cherry said.

“In years with market corrections and pullbacks, these are the worst days, which are followed by the best days,” he added.

In fact, the 10 best trading days by percentage gain for the S&P 500 over the past three decades all occurred during recessions, often in close proximity to the worst days, according to a Wells Fargo analysis published last year.

“Being out of the market and missing the best days and cycles after recessions significantly hurt portfolios in the long run,” Cherry said.

Boneparth said his clients also “know volatility and uncertainty is part of the game and, most importantly, know not to sell into chaos.”

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Personal Finance

Amid tariff sell-off, avoid ‘dangerous’ investment instincts, experts say

Published

1 day ago

April 4, 2025

Business Finance News

Jamie Grill | Getty Images

As U.S. markets continue to suffer steep declines in the wake of the Trump administration’s new tariff policies, you may be wondering what the next best move is when it comes to your retirement portfolio and other investments.

Behavioral finance experts warn now is the worst time to make any drastic moves.

“It is dangerous for you — unless you can read what is going to happen next in the political world, in the economic world — to make a decision,” said Meir Statman, a professor of finance at Santa Clara University.

“It is more likely to be driven by emotion and, in this case, emotion that is going to act against you rather than for you,” said Statman, who is author of the book, “A Wealth of Well-Being: A Holistic Approach to Behavioral Finance.”

That may sound easier said than done when headlines show stocks are sliding into bear market territory while J.P. Morgan is raising the chances of a recession this year to 60% from 40%.

“When the market drops, we have sort of a herd instinct,” said Bradley Klontz, a psychologist, certified financial planner and managing principal of YMW Advisors in Boulder, Colorado. Klontz is also a member of the CNBC FA Council.

That survival instinct to run towards safety and away from danger dates back to humans’ hunter gatherer days, Klontz said. Back then, following those cues was necessary for survival.

But when it comes to investing, those impulses can backfire, he said.

“It’s an internal panic, and we’re just sort of wired to sell at the absolute worst times,” Klontz said.

‘Never trust your instincts when it comes to investing’

When conditions are stressful, our frame of reference narrows to today, tomorrow and what’s going to happen, Klontz said.

It may be tempting to come up with a story for why taking action now makes sense, Klontz said.

“Never trust your instincts when it comes to investing,” said Klontz, particularly when you’re excited or scared.

Why investors should hold despite market sell-off

Meanwhile, many investors are likely in a fight or flight response mode now, said Danielle Labotka, behavioral scientist at Morningstar.

“The problem with that, in acting right away, is that we’re going to be relying on what we call fast thinking,” Labotka said.

Instead, investors would be wise to slow down, she said.

Just as grief requires moving through emotional stages in order to eventually feel good, it’s impossible to jump to a good investing decision, Labotka said.

Good investment decisions take time, she said.

What should be guiding your decisions now

Many investors have experienced market drops before, whether it be during the Covid pandemic, the financial crisis of 2008 or the dot-com bust.

Even though we’ve experienced volatility before, it feels different every time, Labotka said.

That can make it difficult to heed to the advice to stay the course, she said.

Investors would be wise to ask themselves whether their reasons for investing and the goals they’re trying to achieve have changed, experts say.

“Even though the markets have changed, why you’re invested, your values and your goals probably haven’t,” Labotka said. “These are the things that should be guiding your investments.”

While there is the notion that life well-being is based on financial well-being, it helps to take a broader view, Statman said.

At any moment, no one has everything perfect when it comes to their finances, family and health. In life, as in an investment portfolio, all stocks don’t necessarily go up, and it’s helpful to learn to live with the good and the bad, he said.

“Things are never perfect for anyone,” Statman said.