Good Money Blog

As Obama claimed the Democratic presidential nomination, it’s time to look ahead to the general election race in November. According to realclearpolitics.com, Obama has the support of 46.6 percent of voters, compared with McCain’s 45.2 percent. This latest head-to-head poll shows that the two presidential nominees are currently neck and neck. With a range of campaign issues that guide this year’s presidential race, let’s look at the following issue tracker and find out what issues are most important to voters:

As illustrated, the economy is considered to be the most important issue of the 2008 election. The sluggish economy and inflation fear will only make this a bigger issue in the next few months. From an economic standpoint, how will each presidential candidate affect the economy and impact your financial life or your wallet?

Economic stimulus

• McCain
  • Would lower the corporate tax rate from 35 percent to 25 percent. Would allow first-year deduction of equipment and technology investments and establish a permanent research and development tax credit equal to 10 percent of wages spent on R&D.
    My take: McCain’s policy will raise corporate earnings and spur economic development. Nevertheless, corporate restructuring and consolidation will go on. The tight labor market is not likely to loosen much as a result.
• Obama
  • Would pump $75 billion into the economy via tax cuts and direct spending targeted to working families, seniors, homeowners and the unemployed. The plan also includes $45 billion in reserves that can be injected into the economy quickly in the future if the economy continues to deteriorate. Would provide an immediate $250 tax cut for workers and their families and an immediate, temporary $250 bonus to seniors in their Social Security checks. Would provide an additional $250 tax cut to workers and an additional $250 to seniors if the economy continues to worsen. Would extend and expand unemployment insurance.
    My take: Did it sound like Bush’s $168 billion economic stimulus package but in a lesser extend? $250 is approximately one month’s worth of gas.

Housing

• McCain
  • Would consider greater intervention by the federal government to limit effects of mortgage crisis if current measures fail. Believes a government bailout should only be a last resort.
    My take: What can the government do that it hasn’t?
• Obama
  • Proposes creating a $10 billion fund to help prevent foreclosures, eliminate some taxes and fees for families who must sell and offer counseling to homeowners. Announced a “credit card bill of rights” to provide disclosure of hidden credit costs. Would provide tax credits to 10 million middle class homeowners who struggle with mortgage costs.
    My take: That may slow down the bleeding a bit but, with all the unsold homes on the market, it can hardly speed up the recovery process.

Social Security

• McCain
  • When asked about Social Security during a GOP debate, he stated: “Every man, woman and child in America needs to know it’s going broke, and we’ve got to do the hard things. We’ve got to fix it for the future generations of Americans … It’s got to be bipartisan. And you have to go to the American people and say we won’t raise your taxes. We need personal savings accounts, but we [have] to fix this system.”
    My take: I agree that many people still don’t know that the Social Security is projected to bankrupt in 2041 or 30-some years later. The young generation can no longer think that the government will be able to fund even a small portion of their retirement. As a matter of fact, the government has to fix itself, see U.S. National Debt Clock, before it can possibly fix the Social Security. Personal savings accounts may help solve the problem, if not too costly to set up, but the government has to make sure that they will be secured and carry a minimal fee. On the other hand, the choice of investment options could strongly influence participants’ decisions (some will play it too aggressively or too conservatively). Can someone say target-date retirement funds?
• Obama
  • Strongly opposed to privatizing Social Security. Believes that the first place to look for ways to strengthen Social Security is the payroll tax system. Currently, the Social Security payroll tax applies to only the first $97,500 a worker earns; Obama supports increasing the maximum amount of earnings covered by Social Security. Would work with Congress to choose a payroll tax reform package that will keep Social Security solvent for at least the next half century.
    My take: Raising the Social Security threshold is a very quick, effective fix. Depending on the size of the change, if the threshold is not raised dramatically, it will only do so much as to extend the life of the Social Security system given the declining working-age population.

Taxes

• McCain
  • Voted against 2001 and 2003 Bush tax cut laws, but later voted in favor of extending tax cuts through 2010. Says he opposes a proposal supporters call the “Fair Tax,” which would repeal income taxes and other taxes and abolish the Internal Revenue, but has previously said he would sign it into law as president.
    My take: It is no secret that the government needs more funding, even Republicans can’t keep the current tax rates low for too long. So, go ahead to maximize your Roth IRA/Roth 401(k) while you can!
• Obama
  • Opposed extending 2003 Bush tax cut law through 2010. Supports eliminating marriage penalty and extending child tax credit. Supports scaling back capital gains and dividends tax cuts and re-examining tax benefits for the top one percent of earners.
    My take: There will be a wide tax reform. Whether it will impact each tax braket or just the highest brackets will remain a debate. Tax rates on long-term capital gain tax and dividend income are expected to go higher. This will impact those who have invested long-term in taxable accounts. As a result, some may decide to take profits and prompt a stock market sell-off.

Reference: Issues: Election Center 2008 - CNN.com