I recently posted about how I thought Barack Obama’s presidency would affect your personal finances, especially regarding taxes. Today I read an article from Schwab’s November Investing Insights regarding Michael Townsend’s thoughts on the Obama presidency. The president and his policies can have a significant effect on your investing. I’ve been gathering as much information on the impending “change” to put myself in the best investing position possible for the next four years. Below are my thoughts on Townsend’s thoughts.
Obama’s Priorities and Another Economic Stimulus Package
Obama was elected on a campaign that promised “change”. His campaign called for many changes regarding the financial world including:
Townsend correctly states that he must focus his attention on the economic crisis and stabilizing the financial sector. If Obama does not fix the economy, he will be a one-term president and will not have a chance to implement any of his other plans. This most likely means another economic stimulus, which might consist of the following:
I don’t know how I feel about another economic stimulus package, but Obama will look to quickly make his mark on the economic crisis. A second stimulus package is a foregone conclusion.
Obama campaigned on a policy of increasing taxes for the wealthy. As soon as Obama has made his mark on the economic crisis you should look for him to start increasing taxes. He will increase taxes on the wealthy first by increasing the top tier or two of the marginal tax rate, as well as, increasing the dividends and capital gains tax rates. If the economy recovers while he’s still in office, I look for him to increase taxes across the board to pay for some of his other changes.
The estate tax is scheduled to be eliminated in 2010 along with Bush’s tax cuts. The estate tax refers to the tax imposed on the transfer of the taxable estate of deceased family members. Obama campaigned on a 45% estate tax rate. Townsend believes the following will occur:
I may not agree with all of Obama’s changes, however, promoting retirement saving is a great idea. Townsend believes Congress will focus on the areas of coverage, fees and advice. He believes Congress will try to increase retirement savings by setting up “automatic IRAs” for small businesses to allow for payroll deductions straight into an IRA. The point is to provide retirement options for employees of small businesses, without increasing the burden on the employers. This is a great idea. Although it should probably be coupled with an opt-out clause where the employee will be automatically enrolled, and would have to opt out of making contributions to a retirement account.
Fees and advice kind of go hand in hand. Townsend states that Congress has been working on making retirement fees more transparent to the employee, while possibly requiring a low-cost index fund in all retirement plans. Similarly, Congress might try to push through reform regarding the advice available to employees. Congress believes the advisers giving advice to employees might have a conflict of interest. Reform might be initiated to protect the employees from these conflicts of interest. As far as I’m concerned, requiring a low-cost index fund option in retirement plans, in addition to advisers that have the same interests as the advisers will only lead to individuals who are better positioned to take care of themselves in retirement.
Financial Regulation Reform
Since the collapse of the financial sector is at the heart of the economic crisis, reform of the financial sector regulatory system is inevitable. Townsend provides a few options:
Personally, I don’t like regulation in any form, although fear has definitely gripped the stock market and regulation might be the only way to release it’s stranglehold. I just hope the regulation is not permanent.
Townsend wrote a great article and I recommend everybody read it. The president has a huge effect on taxes and any type of reform. I recommend staying as well informed as possible and this article was a great start.
- Tax Information for First Time Home Buyers
- How Obama Might Affect Your Taxes And Personal Finances
- 8 Rules for Selecting Actively Managed Mutual Funds
- Financial Goals Update As Of November 1, 2008
- IRA Contribution Rules and Limits for 2008