Monday, October 27, 2008

Barack Obama And John McCain’s Effect On Your Pocket Book

Obama and McCainWith the election coming up next week, voters on the fence really need to start looking long and hard at the candidates' positions on key topics. And what topics could be more important than those affecting voters' pocket books? The Wall Street Journal just published a great article that breaks down the views of Barack Obama and John McCain on various issues that affect voters' pocket books, so let’s take a closer look at them:

Short-Term Relief:

Obama wants to stimulate the economy through a tax rebate of $1,000 for families and $500 for individuals. In addition, he is proposing that we allow for penalty free withdrawals from 401(k)s and IRAs, up to 15 percent of the account value or $10,000, whichever is lower.

McCain wants to stimulate the economy by cutting the capital gains tax for stock held more than one year to 7.5 percent. He also wants to increase the amount of stock losses deducible against ordinary income from $3,000 to $15,000. In addition, McCain would tax withdrawals from seniors' retirement accounts no more than 10 percent.

Analysis: If you are wealthy and have a lot of money in stocks McCain is your man. If you don’t, then Obama will likely provide your family with more short-term relief.

Income Taxes:

Obama wants to raise taxes on the wealthy. Families making more than $250,000 and individuals making more than $200,000 will likely see tax increases. The top two marginal tax rates will be increased to 36 percent and 39.6 percent, respectively. Obama also plans for some tax cuts for lower and middle class families.

McCain wants to keep all the Bush tax cuts, and also plans to gradually extend tax credits for dependents from $3,500 to $7,000 over time.

Analysis: Again, if you are wealthy, McCain’s plan will benefit you much more as you will actually see tax cuts as opposed to tax increases. If you have a lot of kids, McCain’s plan might also make sense for you, but that probably depends on your income bracket. For most people not in the wealthy category, Obama’s plan will offer them more benefit. This, of course, is not taking into account the potential for job losses that could stem from these measures as McCain proclaims would happen.


Obama wants to raise capital gains tax from 15 percent to 20 percent for the wealthy. At the same time, though, he wants to eliminate capital gains tax on start-up and small businesses.

McCain wants to keep capital gains taxes right where they are, at 15 percent.

Analysis: We don’t get much insight as to the full extent of Obama’s plan for small businesses, so it is difficult to opine on that piece, but the basic trend is the wealthy are going to be taxed more by Obama while McCain wants to stimulate the economy through tax breaks to this class.

The full Wall Street Journal article covers other areas as well, so if you are really on the fence as a voter, make sure to read the full article; I just pulled out the sections most applicable to investors. The theme you will see in pretty much all of these issues is that, in terms of your pocket book, if you are lower to middle class you will probably do better with Obama in office. If you are upper class, McCain definitely favors you. The problem is that nothing is quite as straightforward as that. You also need to take into account the potential impact that these policies could have on the overall economy. It certainly appears that Obama’s policies would add a great deal more to the balance sheet of the U.S. government, but a lot of things could potentially change that. McCain stresses that Obama’s plans would be deadly to small businesses; obviously Obama doesn’t agree with that, and he does offer several measures to aid small business.

The bottom line is a lot of this stuff that the candidates are saying could go either way. We just don’t know how the economy is going to react to the policy changes, or what limits the economy will place upon their plans and their ability to act, and we will never get to see how the losing candidate’s policies would have turned out. At the end of the day, voters are going to have to use their own judgment and decide whether Obama or McCain is the best man for their family and their country. These are difficult times right now, and this is certainly a difficult decision that we all are faced with. Who is the best person to deliver our country out of this mess? You have a week and a day to figure it out…good luck, and remember to vote next Tuesday.

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