Post-Election Financial Health Takeaways

Elections have consequences — sometimes quickly and obviously, sometimes over the long-run, and sometimes not so much.

Last week’s election stands a good chance of being consequential. It stands a good chance of being quickly and obviously consequential due to the oncoming rush of the fiscal cliff. And it has a good chance of being long-run consequential for the simple reason that a president can really make his or her (no hers yet . . . ) mark deep down into the nooks and crannies of the federal government over a full eight years. Think of Clinton and Bush; think of judges and regulations and long-term bureaucratic hires and make-overs.

But let’s bring it closer to home, shall we? Let’s look at the consequences to you and to your overall financial health, shall we?

*  *  *

The beginning of the end of the tax revolt.
A generation after California voters signaled the beginning of the tax revolt via their passage by popular vote of Proposition 13 in 1978, California voters are now signaling the end of that revolt. That signal is both direct (the voters’ passage last week of Proposition 30, which raises state income taxes on high earning Californians and raises sales taxes on all Californians) and indirect (the voters’ collective decision to elect Democratic super-majorities to both chambers of the state legislature, enabling the legislature, for the first time since Prop 13 passed, to increase taxes, including property tax laws) (yup: ever since Prop 13, the only way the CA legislature could raise taxes has been via a super-majority vote).

At the federal level, we also have a strong indirect signal: a clear win for the presidential candidate who’s been saying for the better part of a decade that income tax taxes should go up on millionaires and billionaires.

The simple idea of increasing revs, then, is back in the mix after a nearly 40-year wander-in-the-desert. To which I say Hallelujah!

There’s no doubt in my mind that the Reagan/Norquist axis of hatred of most-things government, and The Right’s concomitant hatred of all things tax (or is it the other way around?), has been very, very detrimental to all of our financial healths — and especially so given the capital-over-labor skew which seemingly 99% of all tax code changes over the past 34 years has begotten.

So here’s a big cheer for getting the government out of the bathtub and stopping the attempted drowning.


Illustration: Tomer Hanuka, from Mother Jones’s The Job Killers


The pulling back of the curtain on deficit hawks and doves.
As the jockeying and jostling over the fiscal cliff goes on over the next many months, we are going to be able to divine, with more clarity than has generally been the case, which politicians really care about decreasing the deficit and which are merely using the deficit as a good front-person for another motivation, which might be, say, to dismantle the New Deal.

The key thing to keep your eye on is, in my estimation, defense spending. It’s one of the meatiest parts of our spending, and one of the most likely places out of which to cut some fat. Think of it as the spending equivalent for us SF’ers of eating out too much, i.e., for anyone looking to reduce spending, it’s the obvious activity to curtail.


Big changes to the government’s Gives and Takes.
Anyone who has read Obama’s books and watched him over the past four years knows that he is all about building consensus and compromise (those who say he is hyper-partisan are . . . hyper-partisan; the facts simply do not support that characterization).

So, while it’s very easy to predict that the federal government’s Gives and Takes will go through some large upheavals in the next year or two, it’s also fairly easy to predict that a lot of those changes will be hard for many to swallow. For instance, raising the Medicare age to 66 will send The Left straight to the moon; it’ll be seen by The Left as both ineffectual at saving money for the country collectively, and harmful to the healthcare system as a whole. Likewise, increasing taxes on upper income earners and cutting defense will drive The Right bonkers.

Personally, the tax deduction I think we should all agree to scrap (or at least further curtail) is the deduction for mortgage interest paid on a second home. How does that deduction help us, as a society? Surely there are folks in the vacation-home industry it helps, as well as people with second homes, but that’s a very small us.

And if I were king of the forest, we would have at least a dozen tax brackets, including a 0% tax bracket for low earners (psychologically and appearances-wise, I think it’s important to have a 0% bracket) and a 50% (at least) tax bracket for all earnings a person makes in a given year that exceed, say, $25 million (in the ’60s we taxed income like that at 91%!).

Above all, I’d return to the days where middle income and huge income people wouldn’t find their marginal dollars taxed at nearly the same rates. Today pretty much everyone finds themselves in marginal tax brackets in the 25 to 40% range — a spread that is way too thin for all of our own goods. The Big Us says the spread needs to be greater.

And, oh yea, one more thing: labor should be taxed more favorably than capital!


Big changes to the health system.
It doesn’t take a genius to know that our health system is about to undergo a thorough revamping, as over the next several years ObamaCare is slated to come into full effect, and we are going to have a grand experiment (though largely without a control group, the hallmark of every good experiment).

Having had clients who, through no fault of their own, found themselves in financial jeopardy because they did not have access to health insurance, I see the changes to the health insurance part of the health system as quite welcome and as quite beneficial to all of our financial healths collectively.

And as for the changes to the health care part of the health system? It’s all very complicated — isn’t it? — but the experts whom I trust to be mostly correct at predicting the future of our health care system are encouraged, and so too, therefore, am I.


Big changes to the retirement savings system.
The figures about how well all of us have so far saved for our retirements are terrifying. The baby boom is a bust when it comes to saving for retirements (topic for another day: the great failure inherent in the shift away from defined benefit retirement plans towards defined contribution retirement plans — students of human nature and financial health have known from the get-go that this would be a large collective fail).

So look to see some further upping of the nudge-ante as Uncle Sam tries to make us an offer for retirement savings that more of us can’t refuse.

 *  *  *

So there you have it. No doubt my politics are again showing.

From a politically damaging presidential election in 2000 through the worst thing that ever happened on our shores in 2001, to some crammed-down tax changes and a really bad war in 2003 that distracted from a better war (whatever that means . . . ) from the fallout of 2001) . . . to a frozen mortgage market in 2007 and the worst financial collapse in 80 years in 2008, etc.  etc., . . .  things were really rotten during the Aughts — both generally and in terms of our overall financial healths.

We now find ourselves quite possibly coming out of the lingering effects of those Naughty Aughties — coming out the other end of the Great Recession/Lesser Depression (sheesh, it’s been a long time — let’s hope so!), with one war done and another dwindling down.

And now we’re going to get to see what the other side can do with a decent-sized chunk of the Teens. And perhaps the whole rest of them . . .

1,078 words (about a 12-minute read sans linked-to content)


Leave a Comment