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President Joe Biden addressed several financial issues in his State of the Union address on March 7 that could have a broad impact on consumers.
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Among the issues he spoke about were proposals his administration has been pushing for months, such as tax reform, but also proposed new housing programs and incentives that could help first-time homebuyers. did.
As explained by Nick Luetke, associate economist at Moody’s Analytics, these housing programs aim to address a variety of issues that have swelled to create affordability issues for Americans across the income spectrum. It is said that
“Many of these proposals must first pass Congress, a particularly difficult task in an election year, but their inclusion in the speech will help Americans across the country avoid rising housing costs. It emphasizes salience,” Luetke said.
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Housing suggestions
The recent housing market has become difficult for many prospective buyers due to soaring mortgage interest rates, high prices, and a lack of inventory.
Now, the Biden administration has announced plans to reduce costs through a number of measures.
In response, former President Donald Trump live-posted his speech on Truth Social and wrote: “Crooked Joe Biden is on the run from the record — and is lying like crazy in an attempt to escape responsibility for the terrible devastation he and his party have caused.”
And regarding the housing market, President Trump posted a meme of Biden saying, “After three years of Bidennomics, 30-year mortgage rates have reached their highest level in 23 years.”
$5,000 mortgage credit for first-time homebuyers.
First-time homebuyers can benefit from a tax credit of up to $5,000 over two years, making homeownership more accessible and affordable. The administration says this equates to lowering the median mortgage rate by more than 1.5 percentage points over two years and will help more than 3.5 million middle-class households buy their first home over the next two years. That’s what it means.
“If you are planning to buy your first home, this credit may reduce your tax liability and provide financial relief during the homebuying process,” says Walters Kluwer Tax & Accounting, CPA and Government said Mark Friedrich, vice president. “This should make buying a first home more affordable and encourage more people to enter the housing market.”
One-year tax credit of up to $10,000 for middle-class households who sell a starter home.
The proposal defines starter homes as homes that are below the median home value in the county and that are sold to another owner-occupier. The proposal is estimated to help 3 million households, according to the Biden administration.
The proposal is aimed at addressing America’s expensive single-family market, which suffers from high prices and lingering interest rates, Luettke said.
“Once implemented, these tax credit programs will provide tax credits to both first-time buyers and sellers of starter homes in the hope of easing pressure on middle-class homeowners,” he said. “This could potentially support transactions in the single-family home market.” He added that rising interest rates are forcing many owners to lock in current rates, while also forcing first-time buyers to stay on leases.
Reduce costs by building and preserving 2 million homes
The president is asking Congress to pass legislation to build and renovate more than 2 million homes. This would likely close the housing supply gap and lower housing costs for renters and homeowners.
“It remains unclear which of these policies have the best chance of success in Congress in this competitive election year,” Luetke said, noting that housing affordability cuts across all demographic and political divides. He pointed out that this is an important issue for Americans. Luetke also noted that housing policy has remained largely stable in recent Congressional budgets.
He added, “Public-private partnerships are critical to the future of housing in the United States, as the program aims to expand housing inventory to ease housing prices while simultaneously making new development financially viable.” “This is likely to be a strategy,” he added.
help renters
Other proposals include combating rent gouging by corporate landlords, with the goal of combating “exorbitant rent increases and other unjust practices that are driving up rents,” the White House said. .
As of the fourth quarter of 2023, Americans will spend about 27.1% of their income on rent on average, with popular cities like New York City, Miami and Los Angeles still paying rent This exceeds the standard of 30% to be considered a burden.
tax
millionaire tax
The President reiterated his proposal for a billionaire tax, which would impose a 25% minimum tax on unrealized income for households with a net worth of more than $100 million.
“That would raise $500 billion over the next 10 years,” Biden said in a speech, adding that it could help restore the child tax credit.
Some argue that further taxes on the wealthy could lead to economic growth and reduce income inequality, Friedrich said. However, he noted that opponents fear it could have a negative impact on investment and job creation.
Some experts had different views on this issue.
“Our problem is that we spend too much, not that wealthy Americans don’t give,” said William Lugar, president of the American Institute for Economic Research. “The wealthiest Americans already pay a huge portion of total taxes. The top 25% of earners pay nearly 90% of all income taxes, and the top 1% pay more than 40%. ”
Increase in corporate tax
In his speech, Biden announced a proposal that would deny companies tax credits if they pay employees more than $1 million.
“He also talked about plans to raise the corporate tax rate from 21% under former President Trump’s 2017 tax cuts to as much as 28%,” Friedrich said.
In terms of how this will affect consumers, Friedrich pointed out that if you own stock or invest in companies, higher corporate taxes could reduce corporate profits. .
“This could have an impact on share prices and dividends,” he said, adding that companies are likely to pass on the increased tax burden to consumers through higher prices for goods and services.
No tax increases for individuals earning less than $400,000
Biden also reiterated his position that he would not raise taxes on Americans making less than $400,000 a year.
President Trump’s tax cuts are set to expire in 2025, and Democrats oppose a full extension of the law. Friedrich added that Republicans hope to extend it if they win Congress and the White House. He also said, “Given the divisive environment in Washington, D.C., most of his tax-related goals will never see the light of day.”
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This article originally appeared on GOBankingRates.com: The 6 biggest financial takeaways from Biden’s SOTU (and Trump’s response)
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