Can He Do It?
Sunday, November 9, 2008
Now comes the reality.
During the long election campaign, Sen. Barack Obama promised many things to many taxpayers, investors and homeowners. When he first announced some of his proposals, the economy and the federal budget looked vastly different. But now the bad news has multiplied: The deficit is expected to soar toward $1 trillion this fiscal year, the ranks of the unemployed are swelling, a massive bailout plan for banks is in place but has yet to play out.
So how will President Obama's pocketbook promises evolve as he moves from campaigning to governing?
The financial crisis and the tottering economy will be the top priority and will probably slow the rollout of polices that would help improve the personal finances of individuals.
"That has to just take precedence over the other stuff," said William Gale, director of economic studies at the Brookings Institution. "Remember, the plans were created at a time when we weren't in this situation. Something has to give. Significant flexibility is required."
What probably has to give is swift action on the myriad tax cuts that candidate Obama laid out on the stump, analysts said. His proposals would slash taxes by $2.9 trillion from 2009 to 2018 and boost the national debt by $3.5 trillion by 2018, according to the nonpartisan Tax Policy Center. House Democrats say they plan to move quickly to implement Obama's tax plan. But a recession and the ballooning deficit may leave little leeway for the president-elect to speed his tax plan, analysts say.
The high cost and complexity of reforming the health-care system also could slow some of the president-elect's initiatives. Among his proposals: requiring that all children be covered, expanding access to Medicaid, creating a tax credit to help small businesses cover their workers.
A few of Obama's proposals, introduced just before Election Day in response to the financial crisis, may become reality fairly soon. A stimulus package could be considered by Congress this month, before the president-elect takes office. In his first press conference as president-elect on Friday, Obama said: "The one thing I can say with certainty is that we are going to need to see a stimulus package passed either before or after inauguration." It probably won't mean another round of rebate checks for individuals but could include a suspension of taxes on unemployment benefits.
Another proposal that could come sooner rather than later is the suspension of a retirement savings rule that requires people age 70 1/2 to take withdrawals from their accounts. Seniors who don't need the money may not want to draw from their accounts when their stocks are at rock bottom. It would be wise for seniors who can wait to do so for as long as possible, said Clint Stretch, tax principal in the Washington national office of Deloitte Tax. "There's a good chance the Treasury or Congress will do something," he said.
Once the economy stabilizes, the Obama administration will return to the other campaign promises, many analysts say. And though the details could change, the president-elect probably won't abandon the basic principle that shaped his program: raising taxes on the wealthiest Americans and giving tax credits and health-insurance subsidies to moderate- and lower-income households.
"I do believe that core piece of orthodoxy gets enacted at some point," Stretch said.
The impact on your budget could be significant. During the campaign, Obama drew something of a bright line at the family income level of $250,000. Families that made more would pay more in taxes; families that earned less would pay less.