Obama's Plans Would Reshape Personal Finance


By Dave Carpenter -- AP Personal Finance Writer

Fighting a deep recession, President Barack Obama may ultimately have the biggest impact on Americans' pocketbooks of any leader in decades.

From taxes and home purchases to paying for health care and college, Obama's initiatives propose change in areas that would reshape Americans' personal finances in a way that no leader has since Franklin D. Roosevelt.

The 100-day watershed, though, carries a large "incomplete" for those efforts given that so little time has passed for lasting assessment. And the long-term consequences of heavy government spending on such programs could be troublesome.

Among the direct effects on wallets so far, take-home pay has increased for 110 million families under the economic stimulus plan. Many first-time homeowners and those struggling to pay mortgages have received substantial help. The government also has expanded college aid, particularly for low-income students.

"The stimulus package, the foreclosure bill, the Treasury's toxic asset plan and all the rest we have seen is an amazing amount to accomplish in the first 100 days in office, even if all of those things were not executed smoothly," said Diane Swonk, chief economist at Chicago-based Mesirow Financial Inc.

But Obama faces battles on some key fronts, such as taxes, and has yet to lay out important details on health care reform and others.

"The record is much less than the rhetoric," said Alan Meltzer, economic historian and professor of economics at Carnegie Mellon University.

Some of Obama's ambitious initiatives may be thwarted by harsh economic realities, too.

How are the markets rating his performance? It depends on how you frame it.

The Standard & Poor's 500 index has risen 6 percent since Inauguration Day, which S&P says is the fourth-best start since Roosevelt in 1932. But since the November election, the index is down 15 percent.

Here are some highlights of how his actions are affecting people's wallets in numerous areas:


What's happened: The stimulus package contained a host of individual tax cuts, including the "Making Work Pay" credit of up to $800 on joint returns. The Earned Income Tax Credit and Child Credit both increased. Sales tax for vehicle purchases will be deductible this year, and income tax on unemployment benefits was partially suspended. On the flip side, tobacco users got hit with a big increase.

What's next: Obama's 2010 budget proposal calls for the "Making Work Pay" credit to become permanent, adding a credit for health care costs for the unemployed and reducing itemized deductions for families making over $250,000. Also in the proposed budget: The estate tax is likely to be kept at current levels, leaving estates of up to $7 million exempt. Taxes on capital gains and dividends would rise to 20 percent from their current 15 percent.


What's happened: The Obama administration has already rolled out several initiatives. One program gives first-time homeowners an $8,000 tax credit for the purchase of a primary residence. The credit is for homes purchased between Jan. 1 and the end of November. What's more, the Making Home Affordable program is expected to help up to 4 million homeowners modify their loan terms and to help up to 5 million homeowners refinance into more affordable fixed-rate loans.

What's next: A new program announced Tuesday would subsidize lenders for modifying second mortgages attached to troubled mortgages at a lower interest rate. Lenders would get larger government payouts for removing second mortgages entirely.

Additionally, the government plans to give mortgage companies $2,500 payments to entice participation in the "Hope for Homeowners" program, which was supposed to allow 400,000 troubled homeowners to swap risky loans for traditional 30-year fixed-rate mortgages with lower rates.


What's happened: The maximum for the Pell Grant, which provides need-based assistance, was raised from $4,731 to $5,350 for the 2009-2010 school year. The administration also wants a system in place to automatically tie future increases in Pell Grant funding to inflation.

The stimulus bill raised the Hope tuition tax credit for 2009 and 2010. This will allow families to claim up to $2,500 for four years — up from two years. The president aims to make the change permanent.

What's next: President Obama is proposing to eliminate the role of private industry in the federal government's college loan program.

There are currently two parallel systems for college loans — students can borrow from the government, or take out loans from lenders that are subsidized by the government. The president's budget proposal shifts the entire system to direct government loans. The move would save more than $4 billion a year, according to the administration.


What's happened: As the economy plunged, banks tightened consumers' access to credit by raising interest rates and cutting credit limits. They also added numerous fees. All were steps that are seen as punishing consumers who mostly followed the rules. The president held a high-profile meeting last week with credit card executives, putting them on notice that he supports efforts to curb such practices.

What's ahead: Obama made it clear he wants to sign a law giving consumers greater protections. Bills with consumer-friendly provisions like requiring 45 days notice before interest rate hikes and restricting higher rates to new charges are moving through Congress. A new law would codify and likely build on tighter rules that are slated to take effect in July 2010.


What's happened: Small businesses provide half of all private-sector jobs and they created about 70 percent of all new jobs in the past decade. In an effort to ensure small businesses can get loans to operate, the federal stimulus bill raised the government guarantees on small business loans to 90 percent. In addition, costly fees for borrowers and lenders were eliminated.

To jumpstart credit markets for small businesses, Obama also authorized the Treasury Department to buy up to $15 billion in SBA loans through the Troubled Asset Relief Program.

What's next: Obama's budget includes $28 billion in small business loan guarantees. Also included is a proposal to eliminate the capital gains tax for investments in small or startup businesses.


What's happened: The 2009 congressional reauthorization of the Children's Health Insurance Program known as SCHIP was signed on Feb. 4. Extending the program will provide $33 billion over four years to cover seven million children currently enrolled, and add four million more.

Similar measures were twice vetoed by former President George W. Bush.

Obama also lifted restrictions that made individuals wait a year without insurance before they could sign up in states that offered coverage for higher income families.

What's next: Obama views SCHIP as the first step toward universal health care but there is widespread belief that the next steps will be harder. The chairmen of the three House committees with jurisdiction over health care reform told Obama in a March letter they expect floor action on a bill before the August recess.

401(k) PLANS

What's happened: The new administration put on hold a rule adopted in the Bush administration's final days that could change how millions of Americans with 401(k)s and individual retirement accounts receive investment advice. Mutual fund companies want Labor Department rules to be relaxed so that their investment advisers can personally offer advice to workplace savings plan participants. Critics are calling for stronger safeguards to protect consumers from potentially biased information from advisers with financial incentives to recommend certain investment products.

What's next: After seeking public comment, the Obama administration has pushed the effective date of the proposed rules back to May 22 while the Labor Department considers the issue.


What's happened: The first bill that Obama signed into law makes it easier for women and others to seek redress when they're victims of wage discrimination — even if they don't make discrimination claims until years after it occurred. The law effectively overturns a Supreme Court decision that had strictly limited workers' ability to file pay discrimination lawsuits. Last year, the Census Bureau estimated women still only receive about 78 cents for every dollar that men get for doing equivalent jobs.

What's next: Obama backs a second bill, the Paycheck Fairness Act, which will allow victims of alleged gender-based discrimination to seek both compensatory and punitive damages. It also puts the burden on employers to prove wage differences are job-related.


What's happened: Money-market mutual funds are supposed to be among the safest investments around, with investors taking on little risk. But the old rules started to be questioned when a fund "broke the buck" in September — meaning its investors weren't guaranteed a dollar-for-dollar return. The new administration is considering ways to make money funds safer, and the Treasury Department has extended a guarantee program that temporarily protects most money fund assets through Sept. 18.

What's next: A decision on what steps to take to safeguard the nearly $4 trillion held in money funds is before the Securities and Exchange Commission, now under Obama appointee Mary Schapiro.

-- AP Personal Finance Writers Candice Choi, Eileen AJ Connelly, Mark Jewell and David Pitt contributed to this report.

Copyright 2009 The Associated Press.  All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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