Why Elections Matter For Your Wallet

by Dual Income No Kids on July 26, 2007 · 0 comments

Hello All,

Today is Thursday July 26th. As many of you know, the presidential election season is starting to ramp up to full steam. Many folks don’t realize it, but elections are hugely important for individual personal finance. The party that takes power wields a titanic amount of influence in Washington, this inevitably impacts your pocketbook.

Management changes in government impact your bucks in at least three ways.

The first is tax policy. The impact of tax policy on consumers is obvious. When income tax rate are higher, you pay more. As many state income tax policies are built around IRS policies, federal income taxes can impact your state obligations as well. Thus, when presidents or congresses change, the amount you gotta fork over can change too.

The second is fiscal policy. The impact of federal fiscal policy is less clear, but its all about budgets, so it matters. Over the past thirty years, the federal government has spent more than it earns. This not a question of spin, rather a matter of cold hard finance.

Well, what happens when an individual spends more than he or she earns? Its obvious, this person usually has to borrow and pay interest on the debt. It’s no different with the feds, we spend nearly a billion dollars in interest on the federal debt. Ultimately this affects you because borrowing means that programs which impact you can’t be funded. That billion dollars a day means its harder to get your kids head start or pay your grandparents their social security checks.
The third is monetary policy. By this, I’m taking about interest rates. Rates are actually set by the Fed, which is the nations quasi independent national bank. Although the fed is largely removed from direct political pressure, most of the major Fed honchos are political appointees.

So, why should you care about monetary policy? The answer is interest rates. Interest rates are your cost to borrow money. Right, if interest rates change from 6 to 7%, it costs 1% more to get say, a home mortgage or a car loan. This also matters if you have a small business and need a loan to cover operating expenses or something similar. In short, you should be very concerned about who is in charge of running the Fed.

In short, the presidental contest is still in the preseason, but you should be paying attention because whoever is elected will have a lot of say over tax, fiscal and monetary policy. All of these have a BIG impact on your bottom line.

Best,

James

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