Politics and Your Money

I plan to remain neutral on this blog during the upcoming election because I think most of you don't care who I'm voting for. That said, I need to qualify my neutrality -- I'm going to be neutral on the candidates, but NOT neutral on the issues. Why? Because several issues impacting our personal finances are up for debate this election year. The two I'll talk about the most: the economy (which impacts your biggest financial asset) and taxes (including how your money is both paid to the government as well as spent by them -- it's probably the biggest expense most of us have.) I'll let you know where I stand on the issues and you can then either agree or disagree. Should be fun, huh? ;-)

For starters, here's a piece from CNN that outlines both McCain's and Obama's (I'm listing them in alphabetical order, BTW) positions on the key issues. It's a starting point as far as I'm concerned. I expect both of them to "fine tune" their plans over the next several months. Furthermore, I expect what they actually do once one of them is president to be very different than any of the things said here because being president is very different from being a candidate for president -- what a person promises very rarely happens exactly as they've predicted. I think history has shown us that. I especially like this quote at the end of the CNN piece:

Despite the candidates' promises, experts are skeptical that either candidates' economic proposals when taken as a whole could be fiscally sound.

;-)

For now, here's a very brief summary of my positions on the various economic topics the candidates are addressing:

• Taxes -- I'd like to keep taxes as low as possible. I think doing so helps both individuals and the economy as a whole. And given that the government is about the least efficient entity in the world, I don't relish the idea of paying more money only to have a huge part of it spent on administration, waste, and various programs of dubious impact.

• Spending -- I think as a nation we can cut a good amount of spending simply by eliminating unneeded programs and by being more efficient. One idea: turn the post office over to a private business and I'd bet they'd find a way to make it profitable.

• Debt -- The above said, I would be willing to pay more in taxes if the incremental portion went to debt retirement. I think we're walking a fine line in our borrowing.

• Social Security -- Raise the age at which benefits are received. It's in alignment with the original intent of the program, but politically I don't think it will happen.

• Healthcare -- I shudder at thinking of the government running our healthcare system. That said, I do think they should guide/encourage/enact laws to get the private sector moving towards decreasing healthcare costs. We need to get costs under control asap!

• Homeowners -- I wouldn't give them any help. Let the free market work, even if it's painful.

• Energy -- Need to do something here -- encourage development of alternatives to oil. Give the private sector a financial incentive to do this and companies will jump on it. Let's not let this issue pass us by as we did in the 1970's.

So, that's where I am currently. Of course, it's subject to change if someone comes up with a new idea I like.

What about you? What's your take on the various economic issues our country faces?

Comments

[Mark]

I agree with most of what you posted, only because I resign myself to the fact that whoever wins the election is not, in the long term, going to do the right thing. Even if Obama's plan helps me the most, I've decided to work within the system I've been given, adapt, and move on.

If taxes on my 401k withdrawals are going to be 30% in 20 years, then I'm going to max out my ROTH IRA or ROTH 401k if I can get one. I will have to reduce my 401k contributions and pay higher taxes up front, but whatever tax-deffered benefits I have now that may be taxed at 30% will be sacrificed for tax-free withdrawals later. It's a good trade.

In my area, the debate is about land tranfer taxes, property taxes, and all sorts of fees to fund infrastructure. I decided to live 3 miles from work in a more expesive, smaller home to save on transportation costs because I believe gas will be $6 a gallon soon. I don't care about property taxes because demand for homes within 3 miles of RTP will start to increase faster than areas further away.

I will adjust my lifestyle and spending to keep my retirement age goal of 58, or 62 at the latest. With pension/social security income averaging, and small 401k withdrawals, it will do the trick for me. I will even run my calculation without any social security, and adapt. I won't need it anyway, but don't expect me to mail the check back.

If I need major surgery, I will go to Mexico or India to have it done. They have better, more modern facilities, swimming pools, etc. I'm not fooled by the notion that the US is the only provider of safe medical care.

I will have no debt by age 58, period.

[tom]

I agree with you on all your points. I'd like to add to your comment on Energy:

We need an Energy Policy.

We are branching out in a million different directions when it comes to energy. On one hand we want to reduce our dependance on foreign oil, on the other we want to be green and develop alternative energy, and another we want to do both. I think ethanol is a prime example of this. E85 is only 15% gas, but requires, I think, twice the energy to produce. We are trying to reduce our oil requirements, but by doing so, doubling our energy usage. Now, ethanol is looking like it's heading to the grave.

Without an effective energy policy to steer this country in a direction, any direction, we will continue to pass useless bills in Congress, spend money on a dying industring, and not fund potentially breakthrough technologies.

[Jake]

"encourage development of alternatives to oil. Give the private sector a financial incentive to do this and companies will jump on it."

You mean a financial incentive like $130/barrel oil??

[MonkeyMonk]

I applaud your direction in covering this election from a financial perspective. There's far too little analysis of the issues these days.

I always feel there's way to much emphasis placed on taxes in the media (e.g., who's lowering them, who's raising them) and not enough on spending. Spending is what is really important. Taxes are just a necessary evil in order to pay for that spending.

I'm all for lowered taxes but only if spending goes down. Otherwise, the promise of lowered taxes (as with the recent tax rebates) are just an empty plot to appease voters. This is one of the things that has driven me crazy about the Bush administration and current Congress -- they try to look good by giving tax cuts and rebates while the same time they're increasing spending. Just as I wouldn't go into a payday loan center, I don't appreciate the Government taking a loan out for me and putting myself or my children further into debt.

[rwh]

I think most people will agree with the majority of your positions on the issues. Everyone wants taxes as low as possible, raising the SS age is sensible given the fiscal situation and longer life expenctancies, encouraging alternative energy sources and energy conservation is sound policy, as is reducing health care costs.

None of this will happen.

The problem isn't the issues. The problem is structural. We have too much democracy and not enough institutional stability. We just had a string of primaries and caucuses that left us with two candidates, one clearly outside the mainstream of his party (McCain) and another that appears alienated from the working class base of his party (Obama) as well as working class voters everywhere. They are indicative of the decline of political parties from their previous role of providing a slate of candidates running on issues that are part of the party platform, to what we now have; organizations that primarily exist to provide funding to candidates who have proven they have popular support, (electability) regardless of their actual stance on the issues.

There are thousands more lobbyists in DC than a generation ago. This has lead to vastly increased influence by special interest groups, which often clashes with the general public interest. Combined with "reforms" of the 60s and 70s government is now so "open" that members of congress can't meet privately to hash out how to reach concensus on the issues you raised in your post. Every vote and utterance is recorded, seized upon by some interest group and used to defame whatever politician that is viewed as standing in their way.

Elected officials are wary of this. That is why they are very careful what they say and how they vote. Many are at the extreme of their particular ideoligical spectrum and are in safe seats. This is why very little progress happens.

I think it's very important to realize this and factor it into how we invest our money.

[Ken]

I agree 95%. The only thing that wont work is the US mail. If we want mail everyday its not going to be cheap and profitable. That junk mail you get keeps the USPS running. I would like to see it stopped but thats a big revenue generator for them.

[Kevin]

Taxes - obviously everyone is for lower taxes, but in my eyes the US already has a pretty low rate globally and I don't mind paying my share to help build roads, schools, etc. so whatever they do here most likely won't affect me too much.

Spending - needs to go down dramatically. What happened to the Republicans being the responsible, fiscally strict party?

Social Security - the country now sees this as their pension when it was originally designed to be a option of last resort. I think most young people (35-40 and under) realize there won't be much or any left for us when we retire. I'm in favor of raising the retirement age gradually as well as getting rid of the cap on the social security tax.

Healthcare - I'm not sure national, government run healthcare is the answer, but obviously private healthcare isn't doing so hot either. I guess I haven't heard anything that struck me as a great idea yet, so I'm open-minded on this one.

Homeowners - I agree with FMF, let the free market work. If we bail all these folks out now, what happens 5 years down the road when they are in the same situation, struggling to make ends meet because of poor planning? Unless someone was a victim of true fraud by mortgage lender, but I would suspect those cases are few and far between.

Energy - to me this is the big one as it affects nearly every aspect of life in America. From food prices to leisure (less driving vacations), it is everywhere. I think some pain is good in that it might actually cause people to shift their habits (SUVs are finally getting less popular, public transit is booming), but more needs to be done. I think increasing minimum mpg requirements is a good start, since we lag the rest of the world in that area. If I'm GM or Ford, I'm licking my chops at this opportunity to reinvent myself as a leader in alternative power sources. So far it looks like they're sitting on their hands, however. Agree with Tom that E85 is a joke, not only does it cost a ton to make, it is causing food prices to increase and the prices are only low because of subsidies.

[Independent George]

I don't think we need an energy policy as other see it; what matters is prices. High oil prices are a better incentive for alternative energy than all the subsidies in the world. Thus, I throw my wholehearted support behind what may be the single least popular energy plan imagineable: cut restrictions on drilling AND support enact higher Pigovian taxes on oil.

Drilling increases supply, but the taxes reduce demand. This creates a new equilibrium where there remains an incentive towards developing alternative energy, but still maintains flexibility of supply should those demands change. Pigovian taxes are far, far more effective subsidies - it reduces demand while cutting into profits, thereby encouraging alternatives on both the consumer and producer side. Of course, the long-term benefits really only accrue if the (admittedly spotty) assumptions hold true:

1. The tax is revenue-neutral (i.e., cut taxes or spending elsewhere to match the revenue from the energy tax; offsetting tax cuts can be targeted for progressivity, or broad-based to for efficiency/transparency).
2. The tax is phased in slowly, on a fixed schedule - markets hate uncertainty above all else, and even a negative can be dealt with as long as it remains predictible.

Will it happen? Not in a million years, but I stand behind the economics.

[Chris]

As far as taxes go, there is no free lunch. Thanks to the Bush tax cuts, the federal deficit will be 70% larger than 8 years ago. This and a weak dollar trade policy has in part driven up the price of oil because oil is traded in dollars. So sure there were some tax cuts that might have helped in the short term, but just a few years later they come back and bite us back hard. At least we can control and predict taxes.

[Holly]

@ Mark:

If I need major surgery, I will go to Mexico or India to have it done. They have better, more modern facilities, swimming pools, etc. I'm not fooled by the notion that the US is the only provider of safe medical care.

That's a fine plan; but don't get fooled into thinking that "major surgery" is the only costly healthcare expense that could possibly devastate your finances. What about a chronic condition or disease that has to be treated on an ongoing basis? Are you ready to MOVE to India or Mexico to get cancer chemotherapy for a year or longer? Testing/treatment for diabetes is far from cheap. What if you get a blood clot - that's a week in the hospital right there. And yes, you can make healthy choices to reduce the RISK of getting these diseases/problems, but you don't have control over heredity or just bad luck.

[Tracee F]

Having just gone through hell to get a needed surgery approved (and now after approving it and the surgery being done the insurance company is refusing to pay and trying to stick me with $65k of bills), and having worked in the medical field -- I am not sure that nationalizing medicine is the answer, but I can tell you that it is CRITICAL to get the decision making process out of the hands of people who benefit from denying treatment. We also have to find a way to get coverage to everyone. I haven't seen a viable way to do that without nationalized healthcare, short of a single payor system a-la Medicare. (Which isn't actually run *that* badly, from a medical standpoint.)

[Todd]

I'm a Libertarian, so my views are a bit different from most of those posted here:

Taxes - the federal income tax should be scrapped and a national sales tax take its place. Everyone should pay some taxes.

Spending - Should be greatly reduced, obviously. All federal spending increases should be frozen for two years, which would rid us of the deficit and help the country start making progress on paying off the debt.

Debt- Reducing it should be a priority.

Social security - Should be made voluntary (through a phaseout), and those who want it should be required to fund it in full.

Healthcare - No government involvement. I'd like to see some market-based incentives (MSAs, for example) employed as well as changes in the laws that allow all medical providers the option not to treat those without insurance.

Homeowners - Screw 'em.

Energy - We definitely need to explore non-petroleum-based sources of energy.

[Chris]

From the nonpartisan (or at least centrist) Tax Policy Center:

"If enacted, the Obama and McCain tax plans would have radically different effects on the distribution of tax burdens in the United States. The Obama tax plan would make the tax system significantly more progressive by providing large tax breaks to those at the bottom of the income scale and raising taxes significantly on upper-income earners. The McCain tax plan would make the tax system more regressive, even compared with a system in which the 2001-06 tax cuts are made permanent. It would do so by providing relatively little tax relief to those at the bottom of the income scale while providing huge tax cuts to households at the very top of the income distribution."

http://www.taxpolicycenter.org/publications/url.cfm?ID=411693

[Chris]

Here is a video from CNN too:
http://www.youtube.com/watch?v=9fbxpMw4mco

In short in an Obama v McCain savings match up:
$38-66K - Obama saves $723 more pr year.
$66-112k - Obama saves $281 more pr year.
$112-161k - McCain saves $410 more pr year.

For all those brackets, there are tax cuts. But over $2.9 Million pr year in income, McCain will save you $269k a year, and Obama will raise taxes $700k a year.

[Todd]

And yet it has been argued by some on this board (not necessarily in this post) that Obama's proposed tax cuts aren't redistributionist. I still haven't figured out how I'm entitled to someone else's money, so I'll take a pass on the latest Demo plan for socialism.

[Hayden Tompkins]

Though I LIKE your views on taxes, they aren't fiscally responsible until we get this war behind us. We are spending BILLIONS, and to cut income while expenditures are sky high is INSANE.

[Todd]

Hayden, I'm not sure if you were responding to my post, but if you were I'd add that I'm not proposing to "cut income." Changes in the tax system and in our budget would have to occur incrementally, over a period of, oh, ten years or so.

[Mauricio]

One thing you said that I found interesting was "Of course, it's subject to change if someone comes up with a new idea I like."

It seems like many people from all sides of the political realm don't acknowledge this. They've come up with all kinds of negative connotations for people who change their mind. Since when has it been bad to change your mind in light of new information? If one is headed in the wrong direction, the best action is never to speed up, it would be to change your path.

Glad to see you are open to change.

[Ryan S]

It is hard to think of the Tax Policy Center as centrist when it is a partnership between Brookings and the Urban Institute.

[Chris]

Centrist, Left, or whatever those are the first detailed projected numbers I have seen. I would be open to seeing more. It seems unavoidable that McCain's tax cuts are heavily tilted towards the top of income earners ($161k a year and up) while Obama's are the opposite.

More detailed chart:
http://www.washingtonmonthly.com/blogphotos/Blog_TPC_Obama_McCain_Tax_Plans.gif

If you are against progressive taxation for ideological reasons thats fine. If you think that Obama's tax plan will lower the tide for all boats thats debatable (I think it will do the opposite - the rich do best when the rest have money). But if you are thinking about your tax bill in financial terms the difference is clear.

[Jake]

Chris --

Do you have information about how Obama plans to change the overall Federal budget? Since I am young and will likely be paying taxes for many years, the budget is more important to me than my immediate tax bill. Would appreciate any links.

[Todd]

McCain's "tax cuts" aren't tilted toward the top of income earners. It's just that those earners pay far more taxes than everyone else and thus stand to benefit more in net terms (i.e., amount of money saved) from a tax cut. It's really hard to give someone making $25,000 a year a huge tax cut since he's not paying much of anything to begin with.

Of course, lost in all this talk is the salient fact that when Democrats talk about making tax cuts, they are usually lying. Bill Clinton, too, campaigned on a tax cut, but as soon as he was elected he instead enacted a huge tax increase and redefined "millionnaires" as those making $250,000 a year. Thus, even if Obama does persuade Congress to enact tax cuts early in his first term, the chances are very good that he will seek to enact a huge tax increase on the middle class at some point before he leaves office. That's just the Democratic way.

[Michael Blackburn]

Jake:
Obama is a proponent of PAYGO, or pay-as-you-go, rules. If you add a program, you either cut another or raise taxes. If you cut taxes for one group, you either raise taxes on another group or cut programs and services.
http://www.barackobama.com/issues/fiscal/

John McCain has no similar page. Here (I think) is his "ethics" page:
http://www.johnmccain.com/Informing/Issues/cb15a056-ac87-485d-a64d-82989bdc948c.htm
...and his "Economy" page:
http://www.johnmccain.com/Informing/Issues/4dbd2cc7-890e-47f1-882f-b8fc4cfecc78.htm

I think the economy is what you're looking for. No mention of PAYGO, but lots and lots of tax cuts. However, he "John McCain will not leave office without balancing the federal budget." Which means you'll either have a balanced budget, or you'll have McCain for a "hundred years."

Hope that helps you, Jake. I know they're links to the candidate's sites, but it's not like you can get unbaised information anywhere these days. You might as well get your spin from the source.

[Jon @capitalistmaven.com]

To all those moaning and whining about the national debt, please stop. It has no comparison to payday advances etc. Those places charge 20%+ interest on those loans. The government on the other hand is taking loans at 2% or less(like loans it takes of Japanese Yen at 1%), check out short term T-Bill rates at TreasuryDirect.com for proof. It is taking this money and investing it in the economy (just like investing your 0 or 1% credit card BT offer). Paying soldiers, Raytheon, Northrup Grumman, Boeing, etc. creates jobs and fuels the economy. And while many people are now skeptical there is some chance that this investment will lead to a more stable middle east.

[Nick]

While I'd certainly appreciate a tax cut resulting in more money in my pocket, I feel that it's fiscally irresponsible to cut government revenue at a time when the country is running a huge deficit. Obama's current plan results in less of a cut than McCain's so Obama is being slightly less irresponsible but neither plan is good for the country.

I believe in targeted government incentives to drive industry in a direction it wouldn't otherwise go but those incentives have to have specific benefits for the country as a whole and they need to be temporary. The candidates are proposing permanent tax cuts with no conditions attached. These plans do not provide no guidance and are really only political tools used to get elected.

I have yet to hear anything from either candidate that indicate they've thought at all about what will, or even should, happen with the extra money provided to tax payers by their plans. It's the same reason I was against the current stimulus checks being sent out. Both provide a temporary bump in the economy but do not target particular issues. The stimulus package and the tax breaks are short term solutions to long term problems.

[Michael Martin]

I agree with all your points listed (when are you going to run for President yourself??? :) )

Only addition I would suggest is on the energy issue where we have the technical ability to in a relatively clean way convert our vast coal resources to oil along with access to selectively/responsibly drill in ANWR - even the realistic threat of this will floor oil prices as the speculators will get skittish.

[Greener Pastures]

Politics is always a fun topic! Here's my two cents. Sitting down? Ha ha - I'm a bit more to the left then you- well, maybe a lot more to the left. Please don't take it personally!

Taxes - I think we need to get over the fact that we have to pay taxes. They do a lot of good for all the inefficiencies out there. If we ended this war, there would be a lot more money for social programs. I think our country needs to think more like a community, and its individuals need to be a little less self serving. There truly are those less fortunate then us that deserve our support.

Spending - The war is out of control. Get rid of it.

Debt - the national debt is out of control. They just keep printing money. No wonder why the US dollar is losing value worldwide. I think social program costs don't hold a candle to war costs.

Social Security - I think we need to at least partially support the older generation, especially through the 401k transition, and with spirally healthcare costs. I think healthcare should be 100% free to anyone over 65.
I think the money would be much better spent here on these sorts of things then than in Iraq.

Healthcare - I believe in public healthcare, especially for senior citizens. And having health care tied to one's job is completely ludicrous.

Homeowners - I think we should help the home owners buy making the crooks that took all their money bail them out. They were the victims of this crime, they didn't cause it. Why do people have so little empathy for them? It's like in the old days, when they blamed the woman when she was raped.
I think those people that benefited from subprime lending should be prosecuted to the full extent of the law.

Energy - This is where our money should be going as well. Think of the great alternative technologies we could come up with if oil weren't currently controlling the government?

Best,
Lisa

[Retired Syd]

Lisa:

Your comments are like a breath of fresh air!

As to the current healthcare system, it's unconscionable that we let 48 million people in this country go without insurance (and therefore, without care!) The idea that we could somehow legislate lower costs is naive. That's exactly what insurance companies try to do right now, cut costs; which means deny coverage, cancel coverage, and deny claims. It's frustrating for those WITH insurance and especially those without.

Why don't we admit the system we have doesn't work and get everyone healthcare in this great nation and THEN worry about fixing the problems with THAT system. The fear we have of "socialized medicine" is keeping us from fixing the biggest problem right now--lack of medical care for 48 million Americans. I think they would feel much better if we were yacking about solving the problems with that system WHILE THEY HAD ACCESS TO CARE.

[Matt]

Lisa,

We agree on just one point, that tying healthcare to one's job is ludicrous. You probably won't agree with how I'd solve it though: I would simply eliminate the tax break for employer-paid insurance premiums and work on breaking the AMA's stranglehold on medical school accreditation and admission numbers. It's amazing how few people realize that the AMA is basically a labor union.

Otherwise your prescriptions are extremely naive. 100% free healthcare to anyone over 65? What does this 100% include? Plastic surgery? Spa treatments? Most would say no, but what about the gray areas? And what about the costs of keeping a terminally ill person "alive" in a vegetative state for a long period of time? Who decides how to ration the services, and what costs are acceptable? The "community"?

Followed to its logical conclusions, thinking "more like a community" leads to communism.