With Congress now split between Democrats and Republicans, consumer-related legislation is likely to be caught in the crosshairs.
“You shouldn’t expect much coming out of Washington that will directly affect your personal finances,” said Ric Edelman, the chairman of financial education and client experience at Edelman Financial Engines.
At stake are regulations around lending, student debt servicing and financial protections and whether Republicans will be able to successfully pass their second round of tax cuts.
In the meantime, many people are already benefiting from a bull market, strong GDP growth, low unemployment, low inflation and recent gains in wages, Edelman said. “We could argue that Washington being gridlocked is good news for the economy,” Edelman said. “Wall Street loves predictability.”
However, just 38 percent of Americans said their finances have improved since the 2016 election, according to a recent report by Bankrate.
The majority of those polled said they were doing about the same financially or were worse off. Bankrate surveyed more than 1,000 adults in September. The margin of error is 3.72 percent.
“The hope is that the economic expansion can continue at least a couple more years in order to help boost the personal finances of more Americans,” said Mark Hamrick, the senior economic analyst at Bankrate.com.
After a busy year of digesting the tax overhaul, you can expect a stalemate as far as new changes to the tax code go.
“I don’t expect to see major legislation passed,” said Nicole Kaeding, director of federal projects at the Tax Foundation.
Instead, the House may pass a number of symbolic bills — to repeal the $10,000 cap on the state and local tax deduction or to raise the marginal tax rate for high income earners — that won’t clear the Senate, Kaeding said.
This also means that while House Republicans had passed Tax Reform 2.0, that bill is likely also dead, said Howard Gleckman, a senior fellow at the Tax Policy Center.
The legislation would have made the cuts to individual income tax rates permanent and expanded the tax-advantaged savings accounts for retirement and education.
As we head into a lame-duck session, there are two major tax issues that still need to be resolved toward the end of the year, said Kaeding.
First, there’s the perennial discussion over tax extenders, a package of tax breaks that surfaces every year to be debated by Congress and temporarily extended into the following year.
There are about 40 tax provisions for legislators to consider reauthorizing in 2018, including a deduction of up to $4,000 per year for college tuition.
The second item to watch during the lame duck session is a bundle of technical corrections — areas of the tax law that need to be clarified.
“These are changes to the tax code that happen every year, but in a year following a major overhaul of the tax code, they’re more important,” Kaeding said.
As for your own investments, hang tight, said Greg McBride, Bankrate.com’s chief financial analyst.
“If you start revamping your portfolio every time there’s an election, you’re just going to spin your wheels,” he said. “Investors are rewarded for hanging in there as opposed to making knee-jerk reactions to their portfolios.”
In fact, stocks typically do well when Congress is split and the White House is under Republican control. In those instances, the S&P 500 averages an annual return of 12 percent, according to Bank of America Merrill Lynch.
“One thing the election doesn’t change in the near-term is the generally positive trajectory of the robust U.S. economy,” Hamrick said.
The burden of student loans on Americans is worsening.
Outstanding student debt in the U.S. will swell to $2 trillion by 2022. Average debt at graduation is currently around $30,000, up from $10,000 in the early 1990s.
The new composition of Congress might offer some relief to student loan borrowers.
With Democrats in control of the house, Rep. Bobby Scott, D- Va., will head the education committee.
One focus is likely to be an update to the Higher Education Act, which determines the form of financial aid programs used by millions of students, said Mark Kantrowitz, the publisher of SavingForCollege.com.
The changes made to the HEA will have to be the result of compromise between the divided Congress. Both parties could get on board with improved counselling to student loan borrowers and a simplification of the FAFSA – the form students use to apply for financial aid, Kantrowitz said. Student loan repayment options may also be streamlined — currently there are at least 14 ways to pay back your education debt.
With a majority-blue House, proposals to repeal the popular public service loan forgiveness program will likely go nowhere, Kantrowitz said.
That program allows certain public servants to have their student debt cancelled after 10 years. “Democrats are strong proponents [of the program],” Kantrowitz said.
On that note, Democrats are likely to demand explanations from the U.S. Department of Education as to why so few borrowers have qualified for the relief, he said.
“They will also be critical of student loan servicing,” Kantrowitz said. One of the largest student loan servicers, Navient, is being sued by five states and the Consumer Financial Protection Bureau for misleading borrowers. (Navient disputes all allegations.)
However, any attempts by the Democrats to regulate lenders will likely collapse in the Republican-dominated Senate.
“The student loan companies continue to need aggressive oversight,” said Jack Gillis, executive director of the Consumer Federation of America. “But with a stronger pro-business, pro-Trump Senate, the concept of bipartisanship seems a distant hope.”
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