Yesterday’s historic election ended in a landslide victory for Barack Obama and the Democratic party. Our country’s economy is going through a rough patch right now, and the Obama Administration has a lot of work cut out for them. Regardless of who you voted for, the new administration’s fiscal policies will affect everyone. Let’s look at some current events and how President Elect Obama’s proposed financial policies may affect them.
The Obama Administration and Taxes
Senator McCain and President Elect Obama both proposed wide ranging tax cuts to the majority of Americans. Obama proposed larger cuts for those in low and middle-income brackets, and he proposed raising taxes on those who earn $250,000 per year or higher, raising estate taxes on estates larger than $3.5M, and raising taxes on capital gains and dividends. Raising taxes on capital gains and dividends would affect just about anyone who owns any kind of stock, mutual fund, or has a retirement plan or pension. However, it is important to remember that campaign promises are just promises until they are signed into law.
The Economic Crisis and Strengthening the US Economy
The current financial crisis and resulting credit freeze is probably the largest challenge the Obama administration will see. These problems were long in the making and will not be solved overnight. The cash infusion form the economic bailout has already provided some stabilization in the credit and lending lending market, which is the backbone of our economy. The US economy will continue to settle and we may continue to see problems for several months, if not longer. But I am confident in the US economy. It has always been successful and I don’t see that changing in the near term.
The Stock Market
Presidential elections often affect the stock market. The recent stock market crash caused many people to lose money in their 401(k) plans and other retirement and non-retirement accounts. The recent volatility has been good for some day traders and brokerages, and the recent drops may represent a good buying opportunity for those with a long term investment horizon. There will likely continue to be a lot of market volatility over the coming months, but if you invest through dollar cost averaging you may be able to take advantage of the current markets and buy more stocks while their value is lower. Eventually the markets will stabilize, but it will likely be many months before the markets reach their pre-crash levels.
Will there be a second stimulus check?
One of Senator Obama’s early campaign promises was a second stimulus check for all eligible tax payers. His plan called for $500 per eligible tax payer or $1,000 per eligible couple. The economic crisis and subsequent bailout pretty much ended talk about another stimulus check. Right now it’s too early to say whether or not we will see another stimulus check, but with the economic bailout costing taxpayers hundreds of billions of dollars, I don’t see how the US government can afford to do it. However, many economic experts are predicting we may see another stimulus check, perhaps even before Obama takes office in January.
How will all of this affect your finances?
The quick and dirty answer is this: it won’t affect the average American’s finances much, at least in the short term. For the most part, changes will be slow to take effect and you should have time to adjust your personal money management to take advantage of policy changes that could benefit you, or prepare for changes such as taxes, that could go against you.
No matter who the President is or which political party he represents, you should always practice good money management skills. Live within your means, eliminate your debt (check out Dave Ramsey’s Baby Steps for great tips on debt elimination), save money, invest, and repeat the process. In short, practice the 5 steps to becoming a millionaire, and your financial situation will be fine – regardless of which political party is in charge.
Photo credit: jurvetson