Change in Your Pocket? - Black Enterprise

Change in Your Pocket?

Barack Obama finally has a chance to follow through on his campaign mantra of change. However, when it comes to pocketbook issues such as tax cuts, health insurance, and mortgage relief, expect certain transformations to take longer than others.

“Some things are more likely to sail through,” explains Amit Batabyal, professor of economics at the Rochester Institute of Technology. “And others are going to be more complicated.” Why? Even though Democrats control both the House and Senate, there’s no guarantee that legislators will approve all the new president’s plans.
One measure Obama supports, a short-term stimulus package between $60 billion and $100 billion, is already under consideration. Legislators have also discussed extending the length of time out-of-work Americans can rely on unemployment insurance. They are debating a public works spending package as well. What’s not likely to happen? Though Congress weighed another round of tax rebate checks for families, those Bush-style efforts to juice the economy are now seen as ineffective by many economists.

The rest of Obama’s agenda is up against budget constraints, political opposition, and the sheer enormity of the government’s bailouts. The president-elect’s campaign centerpiece, a tax cut for the middle class and an increase for individuals and families earning more than $200,000  and $250,000 a year, respectively, is a prime example. He will be under public pressure to follow through on the plan quickly, says Deborah Allen Hewitt, an economics professor at the Mason School of Business at the College of William & Mary. “He has been building a lot around this notion of tax relief for the middle class,” notes Hewitt. “This is one of his main campaign promises.”
One problem: Obama faces an epic budget deficit, threatening many of his more expensive proposals. That may ultimately change his thinking about tax cuts, argues Batabyal. “A tax cut for working families across the board, and the amount of those cuts, might be problematic,” he says.

The Obama administration was expected to act on mortgage relief. But shortly after November’s election, the U.S. Treasury announced it would redirect some of the $700 billion bailout foreclosure assistance. If the Treasury’s revised plan isn’t working by the time Obama moves into the White House, look for further prodding from the new president. “We can expect some quick action to keep his political base in their houses,” says Hewitt.

Other Obama plans likely to be fast-tracked, thanks to broad support among lawmakers: A proposal to allow consumers to make penalty-free hardship withdrawals of up to $10,000 from IRA or 401(k) accounts.
However, Obama may find healthcare reform harder to pull off. Obama would like to preserve job-based insurance but extend coverage to people and small businesses through a new National Health Insurance Exchange. His wish list includes requiring employers (with the exception of small businesses) to offer health coverage or contribute to the national plan. “There will be action to put this in place, but the various actions that are needed are unlikely to become law in a year,” says Batabyal. Even when the plan comes up for debate in Congress, he observes, “Insurers will lobby very hard to whittle down specific items in his plan.” Hewitt, however, argues that Obama could use his considerable political capital on healthcare reform in the first year.
Healthcare is not the only daunting issue to deal with. Social Security, known as the third rail of American politics, faces a yawning funding gap. But don’t expect Obama to climb down onto those tracks anytime soon, says Hewitt, who argues that it could be another eight years or more until the system is really in crisis. “Substantive change to Social Security could be pushed off,” she says. “I would not expect much progress.” That’s a harsh reality Obama and his supporters will have to face.

This article originally appeared in the January 2009 issue of Black Enteprise magazine.