President Biden presented his $1.8 trillion American Families Plan, which focuses on expanding benefits for education, children and childcare. The Biden administration intends to pay for the plan with a series of tax hikes on certain individual taxpayers. Depending on your income and source of wealth, there are some clear winners and losers of this proposal, so let’s look at each and start with those who lose.
Losers Under the Plan
High Earners: The proposed plan would increase the highest individual tax rate from 37 percent up to 39.6 percent. Currently, this tax bracket starts with those earning more than $523,000 for singles and $628,000 for taxpayers who are married filing jointly. While the percentage increase may appear small, this change is projected to raise more than $111 billion over the next 10 years.
Heirs of Large Estates: The plan proposes eliminating the “step-up” in basis on assets received when an estate is passed on. The step-up in basis means that the heir now has a basis in the inherited asset equal to the fair market value at the date of death. This essentially eliminates the payment of capital gains taxes.
The plan allows for the initial $1 million in transferred gains to remain tax-protected, so this would only impact larger estates.
Wealthy Investors: A change to the long-term capital gains and qualified dividends taxation is proposed for taxpayers earning more than $1 million per year.
Currently, long-term capital gains (on assets held for more than one year) and qualified dividends are taxed at a flat 20 percent. The plan taxes long-term capital gains and qualified dividends as ordinary income, raising the rate to 39.6 percent for the taxpayer affected.
Hedge Funds and Private Equity: The Biden plan looks to eliminate the carried interest tax break, which allows partners in the funds to treat a large portion of their compensation as long-term capital gains instead of ordinary income.
Real estate investors: Currently, the tax law allows for what are called section 1031 like-kind exchanges. A 1031 exchange allows the proceeds from the sale of real estate to be reinvested in another similar or “like-kind” asset, and defer the capital gains taxes as a result.
The proposed plan would eliminate section 1031 like-kind exchanges for all sales where there are gains of $500,000 or more.
Low and Middle-Income Families with Children: The Biden tax plan calls for a five-year extension of the expanded Child Tax Credit (CTC) created in the American Rescue Plan. The CTC gives a credit of $3,000 for every child age 6 to 17 and $3,600 for children 5 and younger for single taxpayers earning $75,000 or less and married filers earning $150,000 or less. The plan would also make the existing $2,000 CTC permanently refundable.
Low-Income Individuals Without Children: The plan proposes a permanent enlargement of the Earned Income Tax Credit. The American Rescue Plan increased the maximum benefit for filers without children from $534 to $1,502 and broadened the eligibility criteria to include those under and over 65.
Working Parents: The American Rescue Plan also included a temporary enhancement of the Child and Dependent Care Tax Credit. This credit would give qualifying families a tax credit of up to $4,000 for one child or $8,000 for more than one child to compensate for childcare costs while they work, including after-school programs. The new tax plan would make this credit permanent for those making $125,000 per year or less.
The benefits of the Biden tax plan for its winners are nothing new or novel. Essentially, it calls for making permanent several the provisions originally passed in the American Rescue Plan and increases taxes on wealthier taxpayers to pay for it.
According to a Tufts University survey, six in ten of those surveyed are now vaccinated against COVID-19. However, almost 40 percent of the unvaccinated respondents said they won’t get the vaccine. Only 28.5 percent of the remaining unvaccinated respondents said they will get vaccinated against COVID-19 in the future, with the remaining unvaccinated respondents unable to decide whether they will take the vaccination. With vaccine hesitancy a concern, how can employers encourage more people to get the vaccine?
It is important to understand why some view vaccines skeptically in order to overcome vaccine hesitancy among employees.
The Johns Hopkins University Coronavirus Resource Center attributes vaccine hesitancy to these factors:
The first factor is safety. Since the vaccine was developed faster than most vaccines have been traditionally, many individuals are concerned about reactions, side effects and quality assurance. More can be read from the CDC VAERS Report.
The second reason has to do with the vaccine’s effectiveness, and how well it works against the coronavirus.
The other reasons for hesitancy are due to things like religious beliefs, vaccine phobias and current health issues of the unvaccinated.
This phenomenon is not isolated to the United States. Based on a global survey of 32 nations that Johns Hopkins cites, 98 percent of Vietnamese would get the vaccine, while only 38 percent of those in Serbia would get the vaccine once it’s available.
Navigating Vaccinations in the Workplace
Requesting a Vaccine Exemption Due to Religious Beliefs
Businesses that fall within the purview of Title VII (Civil Rights Act of 1964), must accommodate an employee’s sincerely held religious belief, practice or observance unless it causes an undue hardship on the business.
The CDC says that once a company is aware of a worker’s “sincerely held religious belief, practice or observance [that stops him from accepting the flu shot], the employer has to provide a reasonable accommodation [except if it causes] an undue hardship.” While this refers to influenza, the reasoning behind it applies equally to an employee expressing their religious objection to a COVID-19 vaccination.
Accommodations for Disabled Employees
According to the Equal Employment Opportunity Commission (EEOC), the Americans with Disabilities Act (ADA) covers employers in the private sector and state and local governments that employ 15 or more workers. The ADA offers guidance for employers when an employee requests to be exempt from a COVID-19 vaccination due to a disability. This Act says that employers are able to implement a workplace standard specifying that a person cannot “pose a direct threat to the health or safety of individuals in the workplace.”
If, however, this workplace standard either sorts out or will likely sort out a disabled person from meeting the workplace safety standard by being unvaccinated, the employer must demonstrate that such person without a vaccine would pose a direct threat of risk to another person in the workplace that cannot be reduced by a reasonable accommodation.
The Equal Employment Opportunity Commission (EEOC) believes a direct or proximate threat exists from the unvaccinated person through four tests: length of the danger, how severe and the type of harm that could occur, the chances of the potential harm that will happen, and proximity of the realistic harm.
When it comes to determining if a reasonable accommodation exists, the EEOC lists three criteria: the worker’s professional responsibilities, if there is a different job the worker could transition to in order to make the vaccination less necessary, and how serious it is to the company’s function that the worker be vaccinated.
How to Encourage More Vaccinations
The U.S. Chamber of Commerce cautions that employers who are contemplating mandating their workers take the COVID-19 vaccination, state law varies on how far they can go. However, a good way to get employees vaccinated is by encouraging and not requiring vaccination. Forcing employees to get the COVID-19 vaccination might make workers look for new employment or face a lack of motivation. Depending on the state laws, a vaccine mandate from an employer might lead to a legal battle if employees refuse to get vaccinated or in rare cases an employee dies from the vaccine.
One way to incentivize employees to get the COVID-19 vaccine is by offering them a cash payment to do so. Average incentives range from $50 to $500 with most being $100.
Based on recommendations from the Centers for Disease Control and Prevention (CDC), there are many things employers can do to help get their employees vaccinated against COVID-19.
One recommendation is to have management explain to employees why it’s important to get the vaccination by creating flyers, posters and other forms of communication when staff are entering and leaving the building.
Offering workers, the ability to get vaccinated onsite could encourage people who are on the fence, especially after they see their co-workers get vaccinated.
One part of the American Rescue Plan, which passed in 2021, as the Internal Revenue Service (IRS) outlines, permits businesses to claim tax credits if they give their workers paid time off to get vaccinated. This tax credit is eligible for employer reimbursement through paid sick and family leave. It also provides an employer tax credit if employees need time off to recover from any post-COVID-19 vaccine side effects.
Businesses with fewer than 500 employees are eligible for this tax credit for paid sick and family leave that occurs between April 1, 2021, and Sept. 30, 2021. This includes for-profit, tax-exempt organizations and some government employers. Self-employed taxpayers also are eligible for an equivalent tax credit.
Taking the time to encourage workers to get vaccinated, learning how to navigate certain aspects of employment laws and state laws, and making sure to maximize one’s business balance sheet are all essential tools to make the most of 2021 and set up an even better 2022 fiscal year.
With the economy reopening and more Americans receiving COVID-19 vaccinations, the economy is expected to be operating on all cylinders. However, some economists and market analysts are afraid The Federal Reserve may create a “taper tantrum” if and when it starts to reduce its purchase of U.S. Treasury debt. The Fed’s current track of purchasing $120 billion of U.S. Treasury debt every month has kept the 10-year yield moderated. However, if The Fed signals fewer monthly purchases from current levels, recent history has already seen higher 10-year yields and increased market volatility.
As the Federal Reserve Bank of St. Louis outlines, the Federal Open Market Committee (FOMC) holds meetings eight times a year to evaluate the country’s economic conditions and determine the forward monetary policy. This includes what they will do (or not do) to the federal funds rate, which is the rate that financial institutions charge each other for overnight interbank lending.
Whatever the FOMC decides to do with the federal funds rate, it’s important to know that any changes to the federal funds rate impacts short-term interest rates, such as the three-month Treasury bill. Depending on how it’s modified (increased or decreased), the rate change impacts consumer and business loans and longer-term debt.
When the FOMC raises or lowers the federal funds rate, it sends a policy directive specifying the new target range to the trading desk of the New York Fed. Depending on the target rate of the new fed funds rate, more government securities will be bought to lower the rate, or government securities will be sold to raise the new target. This is accomplished through its open market operations (OMO).
OMO is made up of two parts. The Fed buying or selling U.S. Treasury bonds, for example, consists of the operations part of OMO. Since the Fed relies on the trading desk of the New York Fed to accomplish its goals, it uses the open market to purchase these securities through the traditional bid and offer trading method. It’s one tool in its toolbox to accomplish the dual mandate policy of maximizing employment and maintaining price stability.
Depending on which way the Fed goes – either tightening or loosening its policy – it tries to steer the level of the banking system’s reserves, creating a shift in interest rates. For example, when the Fed buys Treasury bonds, it adds capital to the purchasing bank’s reserve balance to increase lending through lower interest rates. When the Fed sells its U.S. Treasury bonds, it moves the federal funds rate upward. This lowers banks’ reserves, causing financial institutions to increase lending costs.
When it comes to the term “quantitative easing,” the Federal Reserve Bank of St. Louis defines it as “large-scale operations of the purchase of large amounts of longer-term U.S. Treasury securities and mortgage-backed securities.” One noteworthy consideration for OMO is that when the federal funds rate is near zero, which occurred during the 2008-2009 financial crisis, quantitative easing is one more tool in the Fed’s toolbox to help the economy dig itself out of a downturn and provide liquidity.
Tapering in Action
According to the Federal Reserve Bank of St. Louis, when tapering was even mentioned, it had negative effects on the markets. After continued quantitative easing was instituted to rescue the economy from the 2008-2009 financial crisis through part of 2013, the Fed made comments regarding these efforts in its FOMC meeting and during its press conference on June 19, 2013. It indicated that it would begin “tapering” (gradually lessening) its monthly bond purchases during the end of 2013, assuming economic conditions were improving. However, the market reacted badly to these comments.
U.S. 10-year bond yields spiked to 2.35 percent within hours of the FOMC meeting and press conference on June 19, 2013. On June 21, 2013, the 10-year bond yields climbed farther to 2.55 percent. Similarly, the same meeting prompted a spike in “normalized foreign exchange per USD rates,” according to the St. Louis Fed. In the two days from June 19-21, 2013, the U.S. dollar gained between 2 percent and 3 percent in value against the Euro, the British pound, the Canadian dollar, and the Japanese yen.
Looking at markets on June 19, 2013, when the Fed announced the tapering, the Dow Jones fell more than 200 points, the S&P dropped 1.4 percent and the Nasdaq finished 1.1 percent lower.
Retail and institutional investors can’t predict the future, but they can look at the past and monitor upcoming Federal Reserve events to see what it might end up doing to the stock market.
Even before the pandemic began, the U.S. residential real estate market was short on houses, with more people looking to buy than those who were selling. And yet, unlike the 2008 recession, any economic woes related to the pandemic did not undercut housing prices. If anything, real estate had a banner year as home prices continued to rise. In April of this year, the median sale price of existing homes rose by 19.1 percent to a record high of $341,600.
There are several reasons we haven’t seen a repeat of the housing crisis that we experienced during the Great Recession. Today’s market is different from 2007, when the economic decline was launched by a housing bubble that sent many homeowner values underwater – followed by job losses and the inability to pay their mortgage. This time around, the government stepped in to ensure Americans didn’t lose their homes when they lost their jobs. The stimulus-relief packages included a moratorium on foreclosures and evictions. This, too, has contributed to the low inventory of existing homes, which normally would be put up for sale when owners become cash strapped.
The Homebuyers’ Market
However, in addition to the cash-strapped – we now have the cash-rich. Among the gainfully employed, savings rates increased during 2020. This means there are now several types of eager homebuyers: millennials trying to buy their first home; mid-career professionals looking to trade up; and retirees (or near-retirees) looking to make a cash offer for a smaller or second home.
The coronavirus contributed to this fiercely competitive market of buyers. Some are looking to take advantage of the newly mainstreamed remote work model and move to rural areas for a more affordable lifestyle. People who are nearing retirement are rethinking moves to large metropolitan areas or continuum of care retirement communities, where future outbreaks can spread more quickly.
The point is, there are millions of people looking to buy a home right now and not enough housing stock There are 72 million millennials alone, the oldest of who are approaching their 40s, with Generation Z right at their heels. Over the next 10 years, the demand for first-time homebuyers alone will persist regardless of how conditions change in the housing market.
The Home-Sellers’ Market
While the buyers’ market is booming with demand, the sellers’ market is starting to grow as well, just not as fast. Rising real estate values due to low inventory have presented an attractive opportunity to cash-in on home equity. In fact, according to a recent NerdWallet survey, about
17 percent of today’s homeowners say they plan to put their home on the market within the next year and a half.
The seller’s market is boosted by historically low mortgage rates, which when compared to renting make taking out a home loan even more appealing. Sellers also benefit from the near-desperation of buyers, many of whom are willing make offers before seeing the property, for as-is condition and above offer price. Not only can sellers take their pick of multiple offers, but they can often skimp on home repairs and upgrades before putting their house on the market.
In recent months, existing homes have stayed on the market for an average of only 20 days. Sellers also have the luxury of making their buyers wait under contract until the owner can buy another home. But here’s the tricky part: due to low inventory, it can be very difficult to find a replacement. Sellers who become buyers enter the fray of contract wars just like everyone else.
New Home Building
The single-family homebuilding industry recovered from last year’s economic decline quickly. In March of this year, new home starts swelled 15.3 percent to 1.238 million units. But even with the surge, real estate agents say that new builds need to range between 1.5 million and 1.6 million units per month to meet demand.
Unfortunately, one factor that is holding this market back is access to building materials. Low supply of lumber due to increased demand for new homes and renovations has catapulted lumber prices to record highs. According to the National Association of Home Builders, the cost of lumber has driven up the price of the average new single-family home by more than $35,000 within the past year.
While more inventory will come onto market as people emerge from their lockdowns and the economy fully reopens, one thing is certain: demand in the home-buying market is expected to remain high among Millennials and Gen Z for at least another decade. The momentum for high prices is expected to continue through 2021, so it may be a better time to sell than buy.
Let’s face it. Saving money is a challenge at best – and really hard the rest of the time. But what if you made it a fun game to inspire yourself to save? Here are a few ways to do just that.
Keep the Change Challenge
Anytime you receive or find loose change in your pockets or house, put it in a jar. Don’t touch it for a year, and then see how much you save. But here’s a great plus-up for this habit: download a money-saving app like Acorns and watch your savings grow. Anytime you buy something, Acorns will round up the total and deposit the difference into a diversified investment portfolio. Talk about easy.
Weather Wednesday Challenge
This is great idea. Every Wednesday,look up the highest temperature in your state and deposit the amount into your savings account. For example, if it’s 100 degrees, deposit $100. If it’s 32 degrees, deposit $32. You’ll probably save more during the summer than the winter, but after 52 weeks, you could’ve socked away several thousand dollars. Pretty sweet.
Do you go to Starbucks every day for your Double Chocolatey Chip Crème Frappuccino with extra whip? How about guzzling those sodas every day? Are you a smoker? Whatever it is that you’d like to cut down on or even stop, this challenge has two great benefits: you’ll not only get healthier, but you will also save money.
The No-Spend Challenge
Start with a weekend (or even a week) and make a vow not to spend any money on anything except bills or other necessities. The idea is to save money by not spending it. It might cause you to be more creative. For instance, do you really need a new dress for that special occasion? Dig a little deeper into your closet instead of buying a new frock. Or maybe you decide to drive less and not put gas in the tank. This way, you’ll either bike or walk to your destination (if doable) and do more fun things at home.
The Pantry Challenge
Look inside your refrigerator and pantry. How much food do you have that you haven’t eaten? What about that spaghetti sauce or sesame oil? As long as the food isn’t expired, it’s your chance to get creative and whip up a new dish or revive an old favorite. This challenge is related to the “No-Spend Challenge,” and again, the intention is to save money by not spending it.
The 365-Day Nickel Challenge
Nickels are currency, too! But seriously, if you can remember to do this (set a timer on your phone), you’ll be rewarded handsomely. Here’s how it works: On day one, deposit 5 cents into a jar. The next day, 10 cents. The next day, 15 cents. And so on. By day 365, the total deposit will be $18.40. At the end of the year, you’ll have saved a whopping $3,339.75. Not bad, huh?
While saving money might feel restrictive, you’re actually planning ahead to be very happy. When you’ve been able to stick to a habit, or in some cases give one up, you’ll see that anything is possible if you just put your mind to it. And that’s a great feeling.