Thriving Stylist Podcast - Episode #364: How to Prepare for the American Government Administration Change

Host: Britt Seva
Release Date: December 2, 2024
Podcast Description: The beauty industry has evolved significantly over the past decade. In this episode, Britt Seva delves into the potential impacts of the recent American government administration change on hairstylists and salon owners, providing actionable insights to navigate the shifting economic and regulatory landscape.

Introduction

Britt Seva opens the episode by addressing hairstylists who feel destined for a thriving career but are facing challenges in building a stable client base. She emphasizes the necessity of business acumen and strategic marketing in sustaining and growing a salon business beyond mere cutting and coloring skills.

Context of the Administration Change

At the time of recording, Donald Trump has been elected as the new US President, leading into 2025. Britt underscores the significance of this shift, drawing parallels to the previous transition when President Biden was elected. She notes the intense economic and social challenges of the past eight years, including the COVID-19 pandemic, and the widespread desire for economic relief and stability.

Quote:
"Whenever there's an election, there's a lot of promises made and big ideas shared. And historically, never even 75% of what a politician has shared has come to fruition." (00:03:45)

Healthcare Changes and Impact

Britt explores potential changes to the Affordable Care Act (ACA), commonly referred to as Obamacare, under the new administration. She highlights concerns about the expiration of subsidies introduced during President Biden's tenure, which provided significant financial assistance to middle-class families.

• Subsidy Expiration: The subsidies aimed at making healthcare affordable for middle-income earners are set to end in 2025. Trump's stance indicates no intention to renew these subsidies, potentially leading to a premium increase of $400 to $1,000 annually for affected individuals.

• Premium Increases: Insurance premiums are projected to rise by an additional 4% to 10% next year, independent of subsidy changes. This trend suggests a sustained increase in healthcare costs regardless of policy adjustments.

• Out-of-Pocket Costs: As premiums rise, out-of-pocket expenses such as deductibles and co-pays are expected to escalate, forcing individuals to opt for lower coverage levels.

Quote:
"If the subsidies get approved or not, you can bank on the cost of health care increasing in 2025, because whether or not the subsidies get extended, insurance companies are saying rates will increase." (00:11:30)

Taxation: TCJA and Its Future

The Tax Cuts and Jobs Act (TCJA) of 2017, implemented under President Trump, is another focal point. The TCJA is set to expire on December 31, 2025, raising concerns about potential tax increases for over 53% of taxpayers if provisions lapse.

• Impact on Different Tax Brackets: Lower tax brackets remain unaffected, while higher earners benefited from significant tax reductions. Renewal of the TCJA is anticipated but not guaranteed.

• Child Tax Credit and Standard Deduction: Changes introduced by the TCJA, such as increased child tax credits and adjusted standard deductions, are also at risk of reversal if the act is not extended.

Quote:
"If the TCJA stays in place, the tax rates stay the same moving forward. We have no idea how long that extension is going to be, but our tax burden will stay reduced." (00:15:20)

Taxes on Tips for Service Workers

A significant discussion revolves around proposed changes to taxation on tips, particularly affecting workers in the service and hospitality industries.

• Vice President Harris's Proposal: Exempting tips from income tax (but not payroll taxes) for workers earning below $75,000, up to an unspecified cap.

• Potential Implications: Reduced payroll taxes could lead to lower Social Security and Medicare contributions, potentially diminishing long-term retirement benefits for workers.

Quote:
"Just know that either way, if that did impact Social Security and Medicare, it might provide relief right now, but in the long run, it could reduce your support for both medical care when you retire and also potentially Social Security earnings." (00:22:45)

Social Security and Retirement Concerns

Britt addresses concerns surrounding Social Security, emphasizing President Trump's commitment to protecting the system.

• Taxation of Benefits: The proposal aims to end taxes on Social Security benefits for retirees, reducing the current tax burden where up to 85% of benefits are taxable based on income.

• Sustainability of Social Security: Contrary to some beliefs, Britt clarifies that Social Security is not expected to vanish in the next decade. Instead, efforts are being made to preserve and sustain the program.

Quote:
"If you know any retirees that are living off of Social Security, it's a fine line and it's really tight. And so he's looking to put more money in their pockets." (00:19:30)

Corporate Taxes and Tariffs

The episode delves into proposed corporate tax cuts and the reinstatement of tariffs, exploring their potential effects on the economy and hairstyling businesses.

• Corporate Tax Cuts: A proposed reduction from 21% to 15% could significantly boost profitability for corporations, particularly those with shareholders. However, this mainly benefits publicly traded companies (C Corps) rather than sole proprietorships or S Corporations common among stylists.

• Tariffs on Imports: The administration proposes tariffs up to 60% on Chinese imports and 10-20% on goods from other countries. Such measures are expected to:

  • Inflationary Pressure: Increased costs for imported goods can lead to higher consumer prices and overall inflation.

  • Retaliatory Measures: Potential retaliation from other countries could escalate into a trade war, further driving up costs.

  • Impact on Low-Income Consumers: Tariffs are regressive, disproportionately affecting lower-income families who spend a larger share of their income on essentials.

Quote:
"Tariffs are considered a regressive form of taxation, meaning they hit the lowest income consumers the hardest." (00:27:10)

Economic Projections and Strategic Financial Planning

Britt highlights historical perspectives on taxation and interest rates, emphasizing the importance of strategic financial planning in uncertain economic times.

• Interest Rates vs. Inflation: Higher interest rates can curb inflation but may also burden borrowers. Conversely, low interest rates have historically led to asset bubbles, such as the housing market surge witnessed during the pandemic.

• Housing Affordability: Rising interest rates increase the total cost of mortgages, making homeownership less affordable despite potential stabilization in home prices.

• Investment Opportunities: Britt advises hairstylists to remain vigilant about investment opportunities, suggesting that favorable corporate tax policies could buoy stock markets, presenting potential growth avenues for personal finances.

Quote:
"If you have been hesitant to put into retirement, invest, like really keep an eye on things like that because there could be massive stock growth." (00:34:50)

Key Takeaways

1. Anticipate Rising Costs: Regardless of administration policies, the cost of living, particularly for healthcare and essentials, is projected to increase in 2025.

2. Tax and Tariff Uncertainties: Potential changes in tax legislation and the imposition of tariffs necessitate proactive financial planning to mitigate adverse effects.

3. Increase Income Streams: To counteract rising expenses, hairstylists should explore avenues to enhance their income, whether through expanding services, diversifying income streams, or investing wisely.

4. Stay Informed and Adaptable: Continuous education on economic policies and their implications is crucial for sustaining and growing a successful salon business amidst changing political landscapes.

Final Quote:
"Everything is relative. All of us are on this constant quest to like make more, keep more, save more, protect more." (00:36:15)

Conclusion

Britt concludes the episode by reiterating the importance of understanding how governmental changes can impact personal finances and business operations. She encourages listeners to engage further by leaving reviews, sending direct messages, and expressing interest in deeper dives into specific topics like Social Security and Medicare.

Resources Mentioned:

• Kiplinger
• Forbes
• Times
• CBS News

Actionable Advice:

• Financial Preparedness: Plan for increased expenses by budgeting effectively and seeking ways to elevate income.
• Investment Vigilance: Monitor stock market trends, especially those influenced by corporate tax policies, to capitalize on growth opportunities.
• Stay Educated: Continuously seek knowledge on economic and policy changes to make informed business and personal financial decisions.

For more insights and strategies tailored to hairstylists navigating the evolving beauty industry, subscribe to the Thriving Stylist Podcast and join a community of empowered salon professionals.