Tuesday, January 8, 2008

What If Barack Obama Were President?

Barack Obama is one of the leading Democratic candidates in the 2008 presidential election. He scored a decisive win in last week's Iowa caucus, receiving 38 percent of the votes on the Democratic side. How might things look for investors if Obama became our next president?

The biggest issue that most investors will have with Obama--and most Democratic candidates--is the fact he doesn’t support President Bush’s tax policies. As such, Obama would probably, at a minimum, let them expire. The most significant of these changes for investors will be how capital gains and dividend income are taxed. Bush’s cuts dropped the capital gains tax to 15 percent; when that expires in 2010, the tax rate will go back to 20 percent. Tax on dividend income, which was lowered to 15 percent under Bush's tax cuts well, would revert back to ordinary income status come 2010. For most investors, these tax increases would be painful; however, Obama is also proposing to use this new tax income to offer tax cuts to middle class families. It is possible that some investors will benefit from such tax cuts, although it is not clear how many would qualify.

An increased minimum wage, which Obama supports, is another economic policy that could impact investors. Not only does Obama want to increase the minimum wage, he wants to index it for inflation and ensure that it adjusts on an ongoing basis. This, of course, could be a problem for many businesses that hire minimum wage workers, especially small businesses. On the other hand, it would benefit workers, who would hopefully then spend that money elsewhere, helping to restore the balance.

Obama also supports further alternative energy reforms. According to his campaign website, he wants to see the U.S. produce at least 25 percent of its energy from renewable sources by 2025. This is great for the environment, alternative energy companies and probably farmers as well, but it is also possible that these forced reforms could cause energy prices to increase dramatically.

There are many that feel Obama has refreshing ideas on ways to improve the U.S. government, but it is likely that most investors would probably end up paying a little extra in order to support these ideas. Whether or not the changes are worth it remains to be seen, but if Obama is elected president, we will find out soon enough.

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