Inauguration Day 2013: Will President Obama’s Next Term Mean Less Money in Your Bank Account?
After winning the November 2012 election for a second term, we’ll be celebrating Inauguration Day 2013 as President Barack Obama gets another four years to steer the economy back on track. During campaign season, Obama talked a lot about his desire to keep Americans’ costs low over his next term, so we’re examining the Obama second term agenda and finding out what it means for our bank accounts.
Highlights of the Obama Second Term Agenda
The presidential inauguration 2013 date is January 20. In addition to taking the oath of office, attending the Congressional luncheon and participating in the inaugural parade, Barack Obama will give an inaugural address.
In it, we expect to hear him share issues he would like to tackle during his second term, including:
During his election campaign, Obama discussed his desire to create more jobs if he were elected for a second term. He proposed to encourage “insourcing” by offering a 20-percent income tax break to companies willing to bring jobs back to the United States.
Another idea he proposed was continuing energy tax credits that would support 37,000 jobs in the country. A minimum tax rate would also be imposed on overseas profits, which he said would discourage corporations from moving to countries with more favorable rates.
Medicare has been a huge issue in recent years. Lawmakers have looked for ways to reduce spending, which could spare the country billions of dollars. During his campaign, Obama explained that his new health care law (Obamacare), which was deemed constitutional by the Supreme Court last summer, will reduce Medicare spending by $716 billion. The law would also cut payments for Medicare Advantage insurance plans, which are currently used by about one in five seniors.
3. Spending Cuts
After the debt committee assembled in 2011 to determine how to reduce the U.S. Deficit by $1.2 trillion over 10 years failed to come up with solution, a backup plan was created by Obama, known as sequestration, or automatic spending cuts.
These cuts, which were set to take place at the beginning of 2013, would chop budgets for a number of important programs if lawmakers didn’t come up with another option for reducing the national debt by the end of 2012.
Obama and lawmakers agreed they would hold off on the $85 billion in automatic spending cuts for two months, requiring lawmakers to agree on increasing the $16.4 trillion debt ceiling, how to manage spending cuts and the passage of a bill that would fund the government by the end of March.
4. Social Security
Obama and House Minority Leader Nancy Pelosi have discussed willingness to support indexing future Social Security updates to the chained consumer price index (CPI). Some say this move would reduce projected benefits over the long term.
While Republicans have been openly in support of making cuts to Social Security, Democrats have been strongly opposed. Rep. Xavier Becerra (D-Calif.) shared is opposition to this idea.
“If you want to talk about strengthening Social Security into the future … I’m there, I’m willing to talk about just about anything – same with Medicare,” he said. “But to the degree that you’re using benefits that people have paid for, they’ve earned, to cover deficits caused by unpaid-for wars in Iraq and Afghanistan, unpaid-for tax cuts under the Bush administration, then that’s a tough one for me to swallow.”
What Has Obama Done to Impact Americans’ Savings?
In recent months, a number of financial issues have taken center stage among lawmakers. Obama, along with Congressional leaders, have already made decisions that directly impact the economy. So what has Obama done that could help or hurt Americans’ bank accounts in the coming years?
The deal involved saving some tax cuts while letting go of others. It also pushed the “sequester” of automatic spending cuts that were to go into effect on Jan. 1 off for two months. Unemployment benefits were also extended for a year.
The fiscal cliff agreement was deemed a short-term success. However, some have argued that by only postponing the spending cuts for two months, Obama simply set up a new showdown that could be amplified by another fight over how to raise the debt ceiling over $16.4 trillion.
While some Republicans agreed to the fiscal cliff deal, Iowa Democratic Sen. Tom Harkin was strongly opposed.
“This is one Democrat that doesn’t agree with that at all,” he said, shortly after the deal was announced. “No deal is better than a bad deal, and this looks like a very bad deal, the way this is shaping up.”
Payroll Tax Cut Loss
Many workers are disappointed by the loss of the payroll tax cut. In the 2011 tax year, the payroll tax holiday was introduced, which cut Social Security taxes from 6.2 percent to 4.2 percent for all workers as a way to help with economic recovery.
Unfortunately, the tax holiday was allowed to expire at the end of the year. This loss is expected to result in an average household tax increase of $1,000.
Brian Sozzi, chief equities analyst at NBG Productions told Yahoo! Finance that the loss of this tax holiday will make a huge difference. “This hurts seriously,” he explained, sharing further that Americans would feel the “payroll shock” as soon as the first week of the year.
Bush Tax Cuts
Bush tax cuts were another major issue addressed in the fiscal cliff deal. The cuts had been in effect for over a decade and provided all income levels with significant income tax deductions. Set to expire at the end of 2012, lawmakers fought over whether the tax cuts should continue for everyone or be granted only to individuals earning under a specific income.
Obama proposed that the tax cuts be extended only for individuals earning $200,000 or less and households with incomes of $250,000 or less. In the end, both he and Republican lawmakers agreed to extend the cuts for individuals earning $400,000 or less and households earning $450,000 or less permanently. The top 35 percent income tax rate would increase to 39.6 percent.
An online HuffPost/YouGov poll conducted at the end of 2012 found that most people believed the cuts should have been extended only for those earning $250,000 or less. While 29 percent felt this way, only 13 percent said they should have expired for people earning more than $400,000. The second largest percentage (23 percent) thought tax cuts should have been extended for everyone.
How the Obama Second Term Could Affect Your Bank Account
As Obama’s second term gets underway, we will learn more about how his initiatives and prior decisions will impact our wallets. As he shared in November, his goal is to keep more money in everyone’s bank accounts.
“I’ve got a mandate to help middle-class families and families that are working hard to try to get into the middle class,” he said. “That’s my mandate.”
As we know, losing the payroll tax cut will have an immediate impact on our savings, and with no plans of similar cuts, the effect may be permanent. However, it is likely a small one.
If Obama can deliver on his promise of job creation, low-cost health care and the avoidance of a recession, the impact his second term will have on each American’s bank account may quite substantial. But cuts to Medicare and Social Security could undermine those savings, so it’s up to the President to make his second term a prosperous one for the people who voted him into office a second time.