Personal Finance

Here’s what President-elect Trump’s tariff plan may mean for your wallet

Published

4 months ago

November 6, 2024

Business Finance News

Donald Trump speaks at a rally on Nov. 5, 2024 in Grand Rapids, Michigan.

Scott Olson | Getty Images News | Getty Images

President-elect Donald Trump won Tuesday’s presidential election partly by addressing Americans’ economic anxieties over higher prices.

Nearly half of all voters said they were worse off financially than they were four years ago, the highest level in any election since 2008, according to an NBC News exit poll.

But a cornerstone of Trump’s economic policy — sweeping new tariffs on imported goods — would likely exacerbate the very Biden-era inflation Trump lambasted on the campaign trail, according to economists.

There’s still much uncertainty around how and when such tariffs might be implemented. If they were to take effect, they would likely raise prices for American consumers and disproportionately hurt lower earners, economists said.

The typical U.S. household would pay several thousand more dollars each year on clothing, furniture, appliances and other goods, estimates suggest.

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“It’s bad for consumers,” said Mark Zandi, chief economist at Moody’s. “It’s a tax on consumers in the form of higher prices for imported goods.”

“It’s inflationary,” he added.

He and other economists predict the proposed tariffs would also lead to job loss and slower economic growth, on a net basis.

The Trump campaign didn’t immediately respond to a request for comment from CNBC on the impact of tariffs or their scope.

How Trump’s tariff proposal might work

A tariff is a tax placed on imported goods.

Tariffs have been around for centuries. However, their importance as a source of government revenue has declined, especially among wealthy nations, according to Monica Morlacco, an international trade expert and assistant professor of economics at the University of Southern California.

Now, the U.S. largely uses tariffs as a protectionist policy to shield certain industries from foreign competition, according to the Brookings Institution, a think tank.

Trump imposed some tariffs in his first term — on washing machines, solar panels, steel, aluminum and a range of Chinese goods, for example. The Biden administration kept many of those intact.

However, Trump’s proposals from the campaign trail are much broader, economists said.

He has floated a 10% or 20% universal tariff on all imports and a tariff of at least 60% on Chinese goods, for example. Last month, the president-elect suggested vehicles from Mexico have a tariff of 200% or more, and in September threatened to impose a similar amount on John Deere if the company were to shift some production from the U.S. to Mexico.

“To me, the most beautiful word in the dictionary is ‘tariff,'” Trump said at the Chicago Economic Club in October. “It’s my favorite word. It needs a public relations firm.”

China is very 'concerned' about the rhetoric around tariffs, says Longview's Dewardric McNeal

How much tariffs cost consumers

A 20% worldwide tariff and a 60% levy on Chinese goods would raise costs by $3,000 in 2025 for the average U.S. household, according to an October analysis by the Tax Policy Center. Trump’s plan would reduce average after-tax incomes by almost 3%, according to the tax think tank.

Additionally, a 200% Mexico-vehicle tariff would increase household costs by an average $600, TPC said.

American consumers would lose $46 billion to $78 billion a year in spending power on apparel, toys, furniture, household appliances, footwear and travel goods, according to a National Retail Federation analysis published Monday.

“I feel pretty confident saying [tariffs] are a price-raising policy,” said Mike Pugliese, senior economist at Wells Fargo Economics. “The question is just the magnitude.”

The reason for these higher costs: Tariffs are paid by U.S. companies that import goods. The “vast majority” of that additional cost is passed on to American consumers, while only some of it is paid for by U.S. distributors and retailers or by foreign producers, said Zandi of Moody’s.

Philip Daniele, president and CEO of AutoZone, alluded to this dynamic in a recent earnings call.

“If we get tariffs, we will pass those tariff costs back to the consumer,” Daniele said in September.

The U.S. imported about $3.2 trillion of goods in 2022, for example, said Olivia Cross, a North America economist at Capital Economics. A back-of-the-envelope calculation suggests a 10% across-the-board tariff would be roughly equivalent to a $320 billion tax on consumers, Cross said.

Tariffs reduce economic growth and jobs

Of course, the financial fallout likely wouldn’t be quite that large, Cross said.

Trump’s plan could boost the strength of the U.S. dollar, and there may also be tariff exemptions for certain categories of goods or imports from certain countries, all of which would likely blunt the overall impact, Cross said.

'No argument' for Trump tariffs on Mexico, says Harvard's Jason Furman

A 20% universal tariff and 60% Chinese import tax would also generate about $4.5 trillion in net new revenue for the federal government over 10 years, according to the Tax Policy Center.

“The administration could take tariff revenue and redistribute to households via tax cuts in some form or another,” explained Pugliese of Wells Fargo.

Trump has proposed various tax breaks on the campaign trail. Additionally, tax cuts enacted by Trump in 2017 are due to expire next year, and tariff revenue may potentially be used to extend them, should Congress pass such legislation, economists said.

However, the typical U.S. household would still lose $2,600 a year from Trump’s tariff plan, even after accounting for an extension of the 2017 tax cuts, according to an analysis by the Peterson Institute for International Economics.

Here's what's at stake for global trade & tariffs this election

The U.S. economy would also likely suffer due to other tariff “cross currents,” Zandi said.

While U.S. companies that financially benefit from protectionist tariff policies may add jobs, the total economy would likely shed jobs on a net basis, Zandi said.

This is because countries on which the U.S. imposes tariffs would likely retaliate with their own tariffs on U.S. exports, hurting the bottom lines of domestic businesses that export goods, for example, Zandi said.

Higher prices for imported goods would likely also lead to lower consumer demand, weighing on business profits and perhaps leading to layoffs, he said.

In June, the Tax Foundation estimated Trump’s tariff plan would shrink U.S. employment by 684,000 full-time jobs and reduce its gross domestic product, a measure of economic output, by at least 0.8%.

Capital Economics expects the Trump administration would introduce tariffs — and a curb on immigration — in the second quarter of next year, the group said in a note Tuesday night. Together, those policies would cut Gross Domestic Product growth by about 1% from the second half of 2025 through the first half of 2026 and add 1 percentage point to inflation, it said.

Personal Finance

There’s still time to lower your 2024 taxes or boost your refund

Published

3 hours ago

February 27, 2025

Business Finance News

Pra-chid | Istock | Getty Images

With tax season well underway, you may be eager for strategies to reduce your 2024 taxes or boost your refund. However, there are limited options, especially for so-called “W-2 employees” who earn wages, experts say.

After Dec. 31, there are “very few” tax moves left for the previous year, according to Boston-area certified financial planner and enrolled agent Catherine Valega, founder of Green Bee Advisory.

Once the calendar year ends, it’s too late to claim a tax break by boosting 401(k) plan deferrals, donating to charity or tax-loss harvesting.

But there are a few opportunities left before the April 15 tax deadline, experts say. Here are three options for taxpayers to consider.

1. Contribute to your health savings account

If you haven’t maxed out your health savings account for 2024, you have until April 15 to deposit money and score a tax break, experts say.

For 2024, the HSA contribution limit is $4,150 for individual coverage or $8,300 for family plans. However, you must have an eligible high-deductible health insurance plan to qualify for contributions.

“The HSA is easy,” said CFP Thomas Scanlon at Raymond James in Manchester, Connecticut. “If you are eligible, fund it and take the deduction.”

2. Make a pre-tax IRA deposit

The April 15 deadline also applies to individual retirement account contributions for 2024. You can save up to $7,000, plus an extra $1,000 for investors age 50 and older.

You can claim a deduction for pre-tax IRA contributions, depending on your earnings and workplace retirement plan.

The strategy lowers your adjusted gross income for 2024, but the account is subject to regular income taxes and required withdrawals later, said CFP Andrew Herzog, associate wealth manager at The Watchman Group in Plano, Texas.

“A traditional IRA simply delays taxation,” he added.

A traditional IRA simply delays taxation.

Andrew Herzog

Associate wealth manager at The Watchman Group

3. Leverage a spousal IRA

If you’re a married couple filing jointly, there’s also a lesser-known option, known as a spousal IRA, which is a separate Roth or traditional IRA for nonworking spouses.

Married couples can max out a pre-tax IRA for both spouses, assuming the working spouse has at least that much income. It’s possible to claim a deduction for both deposits.

But whether you’re making a single pre-tax IRA contribution or one for each spouse, it’s important to weigh long-term financial and tax planning goals, experts say.

Personal Finance

Student loan applications down from Education Dept. website

Published

3 hours ago

February 27, 2025

Business Finance News

Students walk through the University of Texas at Austin on February 22, 2024 in Austin, Texas.

Brandon Bell | Getty Images

The Trump administration has taken down the applications for popular student loan repayments plans from the U.S. Department of Education‘s website, leaving millions of borrowers with fewer options for now.

Borrowers are unable to access the applications for income-driven repayment plans, as well as the online application to consolidate their loans.

Both applications are critical for borrowers pursuing lower monthly payments and loan forgiveness through an IDR plan, as well as the related Public Service Loan Forgiveness program.

The disruption is due to a recent decision by the 8th Circuit Court of Appeals that blocked the Biden administration’s new IDR plan, known as SAVE, or Saving on a Valuable Education, as well as the loan forgiveness component under other IDR plans.

Congress created IDR plans in the 1990s to make borrowers’ bills more affordable. The plans cap borrower’s monthly payments at a share of their discretionary income, and cancel any remaining debt after a certain period, typically 20 years or 25 years.

More than 12 million people were enrolled in the plans as of September 2024, according to higher education expert Mark Kantrowitz.

Here’s what to know about the changes.

Applications could be down for ‘a few months’

The IDR plan applications shouldn’t be down for too long, Kantrowitz said.

“I expect it will be temporary, lasting a few months while they make changes,” he said.

The Education Department is likely tweaking the applications to make sure all their plans comply with the new court order, as well as removing the SAVE plan all together.

The Education Department did not immediately respond to CNBC’s request for comment.

Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit, also didn’t expect a long wait time before the applications return.

“I get the sense the ED is working hard to get the changes made,” Mayotte said.

Impacts of the plans going dark

Unfortunately, there’s nothing federal student loan borrowers who want to sign up for an IDR plan or switch between the plans can do right now, Kantrowitz said.

Borrowers who are due to recertify their IDR plans will also have to sit tight for the time being, Mayotte said. (Those enrolled in IDR plans typically have to submit their income information annually.)

While the legal challenges against SAVE were playing out, the Biden administration put enrollees into an interest-free forbearance. That payment pause is likely to end soon, experts said. By then, borrowers should be able to access other IDR plans, though.

Those who graduate in the spring are typically entitled to a six-month grace period before their first bill is due, Kantrowitz pointed out.

As a result, they won’t need to sign up for a repayment plan until Novemember or December. The plans should be available again by then.

Options if you can’t afford your student loan bill

The disruption to IDR plans will be especially difficult for borrowers who can’t afford their current student loan bill and now can’t access a more affordable option, Mayotte said.

These borrowers can call their loan servicer and explain their situation.

You should first see if you qualify for a deferment, experts say. That’s because your loans may not accrue interest under that option, whereas they almost always do in a forbearance.

Personal Finance

Skipping your tax return amid IRS cutbacks? Penalties can be costly

Published

5 hours ago

February 27, 2025

Business Finance News

Valentinrussanov | E+ | Getty Images

As the IRS faces cutbacks, some taxpayers are weighing whether to file returns this season.

But skipping your federal filing can be costly, experts say.

Josh Youngblood, an enrolled agent and owner of The Youngblood Group, a Dallas-based tax firm, said he’s had a few clients ask whether they need to file this year.

“I’m concerned we’re going to see more of this” amid IRS layoffs and calls to eliminate the agency, he said.

Last week, the IRS faced mass layoffs as Elon Musk’s Department of Government Efficiency, or DOGE, continued to seek federal spending cuts. Meanwhile, Commerce Secretary Howard Lutnick told Fox News that President Donald Trump wants to “abolish” the agency and replace it with tariffs.

The uncertainty could contribute to taxpayers’ filing delays.

As of Feb. 14, the IRS received about 5% fewer individual returns compared to about the same point last season, according to the agency’s latest filing statistics.

Penalties for ‘tax protestors’ can be hefty

There are various reasons why some taxpayers don’t file returns, according to Syracuse University law professor Robert Nassau, director of the school’s low-income tax clinic.

In some cases, they may think “[the IRS is] never going to find me” or “they’re frightened and overwhelmed by the prospect of owing money,” he said.

Another category of non-filers or filers who deliberately underpay, known as “tax protestors,” argue federal taxes are unconstitutional or don’t apply to them, said certified public accountant Mark Kohler.

“There’s this whole laundry list of weird arguments that never work,” he said.

Tax protestors issues can lead to tax court and penalties can be hefty, experts say.

If you file a return without enough information to calculate the correct tax liability, you could be subject to a $5,000 civil penalty for filing a “frivolous tax return,” according to the Internal Revenue Code.

“Like moths to a flame, some people find themselves irresistibly drawn to the tax protester movement’s illusory claim that there is no legal requirement to pay federal income tax. And, like moths, these people sometimes get burned,” a circuit judge wrote in United States v. Sloan.

Avoid the ‘failure to file’ penalty

Whether you’re protesting the government or avoiding taxes owed, non-filers can expect IRS penalties, experts say.

The “failure to file” penalty is 5% of your taxes owed per month or partial month the filing is late, capped at 25%, according to the IRS.

That’s “ten times worse” than the “failure to pay” penalty, which is levied at 0.5% of your tax balance per month or partial month, also limited to 25%, Nassau explained.