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Obama Wins 2012 Election

How It Affects the Economy

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How an Obama Win Affects the Economy

President Barack Obama

Photo: Ethan Miller/Getty Images
Obama smilling

Obama smiled as he won the 2013 election.

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Romney Obama

Mitt Romney and Obama at the second Presidential debate.

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On November 6 2012, Barack Obama won a second term as President, removing a great deal of uncertainty. This, in and of itself, helped stabilize the stock market and added investor confidence in the economy itself. Unlike 2008, however, he doesn't have a Democratic majority in the House in Congress. In 2008, this majority allowed him to push through the economic stimulus package, Obamacare and the Dodd-Frank Wall Street Reform Act. In 2013, he must battle a Republican majority in the House to accomplish his economic agenda. What is that agenda, what is the likely outcome and how does it affect you?

Obamacare

Love it or hate it, the Affordable Care Act remains under an Obama Presidency. By now, businesses have adjusted to its proposed regulations. Therefore, an Obama win means any negative effects from increased business taxes have already been factored into hiring and growth plans. Higher Medicare payroll taxes on those making more than $200,000 a year in 2013. However, the percentage increase is so low that most will not notice it, and those that do have already adjusted for it. Capital gains taxes for those in this income bracket also increased in 2013, so any sell-off occurred at the end of 2012 to lock in those gains before taxes increased.

In 2014, the economy benefits from having 95% of the population on health insurance. Emergency visits to the hospital, and their resultant costs, should decrease. The level of bankruptcies should also start to slow, and fewer people will be hit with unexpected health care costs. However, there will be additional costs to businesses as they comply with the new regulations. This could slow the economy short-term.

Continuation of Current Federal Reserve Policies

Obama appointed Federal Reserve Vice-Chair Janet Yellen to replace Ben Bernanke in 2014. Therefore, expect continued expansionary monetary policy until the unemployment rate drops OR until inflation breaches the Fed's target inflation rate of 2%. Until then, businesses and homeowners will enjoy the lowest interest rates in nearly 200 years. This will allow the early stages of the housing recovery, and slow but steady business expansion, to continue. For more, see Relationship Between Treasury Notes and Mortgage Rates.

 

Implementation of Dodd-Frank

Dodd-Frank streamlines regulatory agencies, establishes a financial market oversight group, improves transparency for financial disclosure, and cracks down on trading activities that could manipulate markets. The only 2008 campaign pledge that wasn't included was prohibiting government aides from working on issues related to a former employer for two years and preventing them from lobbying after they leave. In the long-term, these measures will help to fix what broke the industry. However, they won't stimulate the economy and create much-needed jobs.

Reduce Military Spending

Ending the wars in Iraq and Afghanistan will reduce the over $800 billion in annual military spending. This is the largest discretionary budget item, and greatly contributes to dangerous budget deficit and debt levels.

New Policies

In 2008, Obama had several campaign promises that are as yet unfulfilled. Perhaps he will be able to focus on these in this second term.

Energy - Obama has fulfilled his promises to invest $150 billion in clean technologies, and increase fuel economy standards. However, he has yet to reduce carbon emissions through cap and trade, and regulate new building efficiency. He has repeated his 2008 pledge to eliminate oil and gas business deductions,and double federal funding for basic research. However, these would all have a negative short-term impact on economic growth. They should not be addressed until the economy is growing more robustly.

Review NAFTA - Obama promised to review NAFTA and other free trade agreements to protect labor and the environment. He has negotiated those safeguards in agreements with Korea, Colombia and Panama, but has not yet tackled NAFTA. He repeated his promise in the 2012 campaign to end tax breaks for outsourcing. However, these could negatively impact economic growth, and so should be further delayed. Adding too many labor safeguards to trade agreements will restrict trade and possibly be a deal-breaker for potential partners. Making labor and tax laws too restrictive on multi-national corporations will just cause them to relocate outside of the U.S. once and for all.

Reform Bankruptcy Laws - In 2005, the Bankruptcy Prevention Act was enacted, making it more difficult to declare bankruptcy. Many experts now think this helped cause the 2008 financial crisis. That's because homeowners drained the equity in their homes to pay bills instead of declaring bankruptcy on their personal debt. Perhaps Obama will address this 2008 campaign pledge in his second term. For more, see How 2005 Bankruptcy Act Led to Recession.

Reform Minimum Wage - Obama promised to index the minimum wage to inflation. This would help low income wage earners, the so-called working poor, to earn a decent standard of living. It would also provide more of an incentive for those accepting unemployment benefits to get a job. It won't aggravate inflation much, because these wages are so low that an annual 2-3% increase won't have as much effect as increases on the high end of the income gap. Article updated November 16,2013

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