What Will Congress’ Latest Move Mean For Your Financial Future?

Among the key highlights of the budget is the extension of Trump’s 2017 tax cuts through 2028, which is expected to benefit high-earning Americans the most by lowering income tax rates. Additionally, there will be a temporary suspension of federal tax on overtime pay and tips. A new initiative called the “Trump Account” will be introduced for children born between 2025 and 2028, providing tax-free savings with an initial $1,000 seed fund in each account.

However, the budget also includes cuts to Medicaid and food assistance programs, which could result in financial instability for millions of low-income families. The Congressional Budget Office estimates that nearly 12 million people could lose Medicaid coverage by 2034, potentially leaving them without medical coverage or forcing them to take on debt.

Experts from BW have shared their insights on how the budget will impact various groups, including home buyers, taxpayers, small business owners, and individuals with loans or credit card debt.

Sara Rathner, credit cards, personal finance expert & writer:

An increase in the federal deficit could lead to higher long-term interest rates, making debt more costly. This is especially concerning for credit card holders, as they often face variable interest rates that could rise. With average credit card interest rates currently around 22%, consumers with existing debt may experience further financial strain.

This may be a good time for individuals to explore options for reducing interest rates while paying off their debt, such as utilizing balance transfer credit cards with 0% APR promotions or seeking lower-interest personal loans.

Another concern is the reduction in funding for the Consumer Financial Protection Bureau, potentially limiting its ability to address consumer protection issues. Individuals may need to be more vigilant in monitoring their accounts for discrepancies or unfulfilled promises from financial institutions.

The budget will have significant implications for individuals relying on Medicaid and Affordable Care Act (ACA) health insurance coverage. Medicaid recipients may face new work requirements and more frequent eligibility checks, potentially leading to coverage loss even for those who qualify. Rural hospitals dependent on Medicaid funding may reduce services or close, leaving communities with limited healthcare options.

For ACA health insurance enrollees, the need to re-verify tax credit eligibility annually could add complexity to the renewal process. The budget does not extend ACA subsidies, resulting in higher insurance costs for many individuals. Legal residents losing access to ACA subsidies may face coverage termination, impacting those remaining on plans.

Mortgage rates initially dropped to their lowest levels since April but rose following the bill’s passage. With a growing national debt, investors may demand higher interest rates, potentially affecting mortgage rates. The budget benefits homeowners who itemize deductions and pay mortgage insurance, allowing them to deduct premiums.

The increase in the state and local tax deduction cap and the reinstatement of the PMI tax deduction may make homeownership more affordable. Higher deduction caps primarily benefit high-income individuals in regions with elevated taxes.

The bill introduces changes affecting families, such as an increased child tax credit and SALT cap boost. Older Americans may benefit from a temporary income tax deduction, while car buyers can deduct interest on auto loans. Tip earners and overtime workers may also qualify for deductions based on their income levels.

On the downside, cuts to the SNAP program and the expiration of tax credits for electric vehicles and energy efficiency improvements could strain low-income households. Individuals should be aware of these changes and plan accordingly to maximize their tax benefits.

Kate Wood, home and mortgage, student loans expert & writer

The bill outlines changes to federal student loans, including phasing out certain income-driven repayment plans and introducing a new Repayment Assistance Plan. Existing borrowers may face higher monthly payments, but loan forgiveness remains an option, albeit with an extended repayment period.

Borrowers will have time to transition to new repayment options, offering some relief amid the evolving student loan landscape.

The expiration of ACA marketplace subsidies and Medicaid cuts could pose challenges for small business owners and their employees. Rising healthcare costs may force businesses to seek alternative coverage solutions or reduce expenses, impacting both current and aspiring entrepreneurs.

While the budget may offer short-term growth, its long-term impact on financially vulnerable households and the national debt is concerning. The legislation’s spending cuts could exacerbate economic challenges and lead to higher debt levels, potentially affecting interest rates and economic growth negatively.