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How the Obama Administration Will Affect Your Finances and Investments

by Ryan Guina

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

How will the Obama Administration affect your finances?

Are markets going back up?

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. Read more about Obama’s proposed tax cuts at CNN.

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.

Here are what a few other bloggers are saying about how Obama’s administration will affect your wallet:

Photo credit: jurvetson


Published or updated October 29, 2012.
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{ 12 comments… read them below or add one }

1 MG

My only question is who pays? Seem to be quite a few cuts here but it has to be financed somehow?

Corportate taxes? Wouldn’t that just me higher cost for consumers (inflation)
Tax high earners? Is there enough there to fund all this?
Middle class tax increases? I hope not.

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2 Ryan

Miranda: I agree. Most of this article would be the same regardless of which candidate won the election. The important thing is to take care of your personal finances, and a lot of it will work itself out – the rest is out of your control, so it’s best to be prepared.

MG: I wish I knew. Cuts aren’t always the way to go because the money needs to come from somewhere.

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3 Miranda

I think that, overall, we put waaaay to much store in what a president can do to really affect us in our everyday lives. While the policies enacted can affect us, for the most part, we are largely responsible for our own personal finances. I think that you do a great job to remind us that the basics of good financial practice is our best bet — no matter who is elected.

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4 Steve C @ MyWifeQuitHerJob.com

I agree with Miranda. I think no matter what they have promised, we’re in store for a world of hurt come tax time. Either way, we’re going to end up paying more and I’m sure the numbers will change depending on economic conditions.

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5 Miranda

I’m not sure that anyone is worried about the financing part. And why should they? In the 1980s Reagan introduced the idea of an “acceptable deficit” in the name of economic expansion and presidents of both parties have been running with it ever since. GOP’ers like to point to “tax and spend” Dems, but they’ve become just as irresponsible with a “tax cut and spend” philosophy. It would be nice if the government thought in the same terms that many of us think of in our personal finances, but it doesn’t. And, as backward as it is, deficit is a way of life for our government.

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6 Pete

Both parties have become tax and spend parties, and government spending is completely out of control. And what do we hear of in the election? More promises of ways to spend even more money that we don’t have.

I agree we need to focus on things that we can control at this point, like managing our own finances in a positive way.

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7 BloggingBanks

Pat,

Thanks for this overview. I doubt that there will be much changing over the next 2 years in terms of taxes.. After 2010 however.. who knows..

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8 Mrs. Micah

Every once in a while during the campaign, I’d wonder why on earth either McCain or Obama would be running. It’s not like they only need to keep an even keel or something, they’re inheriting a huge mess. I don’t know if anyone is really up for the task.

As for your assessment, I think it makes sense. For at least the next year there’ll probably be little effect, just more fallout from the current situation.

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9 deepali

“The good news: you won. The bad news: you won.”

I agree that we get a little caught up in campaign promises and forget that our government is more than just the president. By the time the plan makes it through Congress, it’ll be a different animal.

And at the same time, having a good personal plan is the most influential thing anyway. If you spend more than you earn, it doesn’t matter what you pay in taxes.

As for stimulus – it looks like Pelosi is talking a plan involving infrastructure and food stamp expansion…

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10 Alisa

President – Elect Obama does have his work cut out for him. We are, without a doubt, in an economic mess! But interesting enough, this is not new to us. The United States has had tough economic times in the past. And, in time, we seemed to have always come out of it. But this one is scary! Because I have just started my investment journey I am kind of disappointed about the possible increase on Captial Gains and Dividend Taxes. However, if, in conjunction with other policy moves, it helps to reduce our current economic problems, so be it!

I read a very interesting report called the Graziadio Business Report (a link to the report is posted on my blog). The report shows the historical dates of Presidential Elections and the activity in the Stock Market from 1942 – 2004.

This is so interesting. I didn’t know that historically, bear markets occur within the first or second year that the president is in office. If this is true, and remains a constant, than investors should be able to make smarter investment choices. (Everything else remaining equal). Who knows. Still Learning On My Jounrney! Be Well.

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11 Ryan

Alisa: I’m still learning about investing too. I don’t mind the bear market because my investment horizon is long term (30 years for traditional retirement age). So I am trying to buy more stocks now, while the prices are depressed.

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12 Joe

The cuts need to come from government, and sadly Obama is about growing government and using it as a tool to bring about what he, pelosi and reed consider to be “fairness”.

Like MG points out, the lower class and middle class will be hardest hit by windfall profits, higher corporate taxes and wealth redistribution. Companies will pass along higher taxes in the prices of their products, corporations will close up shop and offshore even more, if the rates go high enough. Small business will be forced to lay off workers they can’t afford the taxes to keep on staff. The democrat philosophy is to punish business and create government dependency wherever possible. It’s going to be a rough four years, but at least the Bush supporters can gloat when people look back at the last 8 years as the good ole days. :-/

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