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Whenever I drift into newsletter financial education topics that border the political environment in our country, I always give my general disclaimer up front: I am a lifetime independent voter who proudly has NEVER voted straight party ticket and thinks the whole red tribe vs. blue tribe environment in our country will eventually be seen as a colossal (and destructive) waste of time. History has shown over and over that the only way that REAL progress gets done is through compromise. It is a shame that the political discourse has become so toxic again in recent months.
There are plenty of non-pocketbook issues that may very likely be the primary driving forces in the upcoming midterm elections, such as abortion rights, gun laws, crime, education, voting rights/election acceptance and immigration (I would note that many of these issues often ultimately impact one's personal finances).
However, the purpose of this article is to focus on pocketbook issues such as taxes, student loans, inflation, interest rates, etc. because the priorities of the leaders you choose WILL DEFINITELY impact your personal finances.
TAXES:
President Biden promised not to raise federal income taxes on taxpayers with incomes under $400K and has essentially kept that promise. The recently passed Inflation Reduction Act (IRA) created a minimum corporate income tax of 15% on corporations with net income in excess of $1 billion (does NOT include S-Corps).
The 2021 American Rescue Plan expanded the Child Tax Credit, including monthly payments to millions of parents. Extension of these credits into 2022 was blocked by the GOP. The Democrats have focused on raising taxes on high income taxpayers and corporations.
When in power, the GOP has focused on tax cuts that typically include some tax reduction for all income levels, but with the greatest benefits going to high income taxpayers. The Republicans have recently submitted the argument that if large corporations pay more in taxes such as with the new 15% minimum tax, they will pass along some of these costs to middle class taxpayers making less than $400K per year. An analysis shows that the new minimum tax would only impact 127 companies, including Apple, Microsoft, Tesla, Pfizer, Eli Lilly and investment giant Blackstone. Whether they will raise prices due to new taxes is to be seen.
STUDENT LOAN FORGIVENESS:
In 2020, the Cares Act was passed with bipartisan support and signed by President Trump. The Act included student loan payment forbearance (temporary pause in payments due to pandemic) plus lowering of interest rates.
During the Biden years, Democrats who are more progressive (Warren, Sanders) have called for massive student loan debit forgiveness while more moderate Democrats (including Biden) have preferred partial debt forgiveness based on financial means and also targeted borrowers such as those with debts from schools that have filed for bankruptcy. A $26 billion package was passed in July. However, the progressive wing of the Democratic party wanted more.
Republicans offered a plan which did not include forgiveness of debt but did include limiting of total interest charges to 10 years of interest, plus repayment terms based on income.
In late August, President Biden announced that up to $10K of federal student loan debt would be forgiven for borrowers with incomes under $125K per year ($250K for couples). For Pell Grant borrowers (tend to be lower income), up to $20K of forgiveness is available. Those who have refinanced federal loans with private companies such as SoFi would not receive any forgiveness as the government has no power to forgive private debt. The GOP as well as some Democrats and Independents have claimed unfairness to those who either paid off their debts in full or did not attend college at all. Democrats have countered with the argument that GOP tax cuts that favor the wealthy and corporations are not fair, as well as government subsidies to big oil companies and farmers. The arguments from both sides have validity.
INFLATION MEASURES:
The Inflation Reduction Act (IRA) recently passed allows Medicare to negotiate drug prices, caps out-of-pocket drug costs and also expands Affordable Care Act subsidies to help citizens pay for healthcare.
The IRA legislation includes significant tax credits to motivate Americans to purchase an electric vehicle. Car manufacturers are gearing up for a large increase in electric vehicle sales. This transition should put significant downward pressure on gas prices. Gas prices have recently abated due to decreased demand plus measures such as tapping strategic reserves. Tax credits under the IRA for electric car purchases include up to $7500 for a new vehicle and $4,000 for a used electric vehicle. However, there are requirements that the vehicle must be assembled in North America to qualify for the tax credit. Here is a link to a preliminary list of qualifying vehicles: https://electrek.co/2022/08/16/ev-tax-credit-list-of-cars-eligible-7500-inflation-reduction-act/
The GOP generally feels that the Biden Administration is spending too much money. Large amounts have obviously been spent on fighting Covid plus helping Ukraine in their war with Putin, with savings coming from eliminating the presence in Afghanistan. Focal areas where the GOP says the government is wasting money include the shift to electric vehicles and alternative fuels, Medicaid, government overreach on climate change issues, plus many social programs. One could argue that there has been a certain amount of waste in every administration, but the GOP makes the fundamental argument that they believe the purpose of government is to provide certain primary services without getting involved in many aspects of American life. The GOP also argues that the amount of stimulus funds distributed during the pandemic (under Trump and Biden) was excessive and this additional supply of money contributed significantly to our current inflation. Data tends to support this argument as a contributing factor, but these were one-time and not ongoing payments and therefore the impact of stimulus payments on inflation has dropped as the remaining unspent money diminishes. Inflation is currently a worldwide and not America-only phenomenon.
Domestically, Biden is spending large amounts of money on infrastructure, climate change including drought relief, bringing the IRS back to the staffing level they had in 2010 prior to massive cuts, plus healthcare benefits and electric-related tax credits mentioned above. The GOP position is that much of this spending is wasteful. However, the IRA legislation is scheduled to reduce the deficit by $300 billion over 10 years due to savings from drug price negotiation, new corporate taxes, plus better tax law enforcement from high income taxpayers and corporations.
The worldwide inflation rate is 9.6% while the U.S. rate is currently 8.7%.
INTEREST RATES:
Federal Reserve Chairman Jerome Powell was appointed by President Trump and reappointed by President Biden. The Federal Reserve sets interest rates and is independent from political bodies.
With the mass migration out of the workforce stemming from multiple factors including the global pandemic as well as baby boomers born after World War 2 retiring worldwide, wage inflation pressures have been significant with the smaller workforce.
The Fed has already implemented multiple interest rate hikes and it is expected that additional hikes may be needed, although future hikes may be smaller as we have started to see inflation cool off.
As far as one's ballot choices, I would repeat that the Federal Reserve is independent of any political body.
MOST IMPORTANTLY, BE SURE TO GET OUT AND VOTE DURING THE UPCOMING MIDTERM ELECTIONS !!
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