How Obama Might Affect Your Taxes And Personal Finances

Barack Obama was voted the new president elect yesterday. Very early in the campaign, the number one issue changed from the war in Iraq to the slumping economy. Obama has preached change throughout his campaign and the most pressing issue that requires change is the economy. Additionally, Democrats hold the majority in both houses of Congress and in combination with Obama will quickly try to turn the economy around in ways that may affect your mortgage, taxes and retirement plans.

Retirement Plans

Obama has entertained the idea of temporarily eliminating the annual required minimum distributions from IRAs if you are 70 or older. The idea is that you shouldn’t be forced to sell losing investments if you don’t need the income. Obama has also mentioned making the required withdrawals tax free for a short time.

He has proposed temporarily removing early withdrawal penalties on $10,000 of savings from 401ks and IRAs. The money would still be subject to federal and state income taxes.

A more permanent proposal may include matching 50% on the dollar for the first $1,000 of retirement contributions if your income is less than $75,000. I am all for any proposal that encourages retirement savings. He has also proposed requiring employers to set up automatic contributions to IRAs (if a 401k or similar retirement plan is not offered) for employees. The employees would then have the option to opt out. I have read that more employees participate in retirement savings programs if they are automatically enrolled and have to opt out.

2nd Stimulus

Prior to the major bailout plan, Obama proposed a 2nd stimulus plan, which would result in roughly $500 stimulus checks for individuals and $1,000 for families. The stimulus plan would also encompass help for small businesses and failing mortgages.

Tax Plan

Obama has proposed reinstating the 36% and 39.6% tax rates for individuals with income of $200,000 and joint filers with income of $250,000. He plans on keeping all other income tax rates the same as the Bush levels. Obama plans a similar tax increase for capital gains rates. He plans on increasing the top capital gains tax rate to 20%.

Obama’s plan does include tax cuts in a few areas for lower level income filers. He wants to eliminate income taxes for low income seniors. He wants to add or increase tax credits for Social Security taxes, college expenses and mortgages who don’t itemize. Obama has also mentioned offering a refund from taxes levied on oil companies, although with the gas prices on the decline, I don’t know how much steam this refund will gain.

Mortgages and Foreclosures

Obama has proposed including a 90-day moratorium on foreclosures for firms receiving help from the $700 bailout plan. This plan includes the ability to buy troubled mortgages and restructure them. Obama also favors providing bankruptcy judges the power to write down mortgage debt. There is an argument that allowing judges to modify loans could lead to higher mortgage rates for future home buyers.

Conclusion

The next year will be extremely interesting. While doing research on Obama’s website, I browsed through all of his ideas for creating jobs, improving infrastructure, furthering energy independence, etc. and I just don’t see how he can not raise taxes. All of these ideas for change and tax cuts sound wonderful. I’m all for energy independence and promoting research and science jobs, but I just don’t see it happening without increasing taxes. Even though I don’t know how Obama will make it happen, I suppose I’m willing to see what he can do. Anybody else have thoughts as to how Obama’s tax plans and economy rescue plans will affect main street?