With the installation of a Democratic House and Senate in January, their legislative actions can affect people all over the world and Americans may be wondering about matters concerning their money.
Big changes are unlikely, according to Don Patrick, MBA, a certified financial planner and advisor for over 26 years and managing director of Atlanta-based Integrated Financial Group, but some changes may occur in the way in which money is handled. Patrick feels there are three areas that could make money work differently: paygo; the minimum wage; and taxes.
The government has set a bad example in keeping a budget balanced. Consumers who spend without limit must ultimately "pay the piper" and so must the government. With the slight Democratic edge in both chambers, spending will likely be tightened. "A virtually foreign concept in the Republican-controlled House and Senate, the practice of 'paygo' could make a return now that Democrats are in control," states Patrick. The paygo model requires a bill sponsor to either raise or cut spending in another program in order to pass that bill. "The return of paygo could mean that consumers will have to pay higher taxes, but the benefit is that we may get closer to a balanced budget than we have been in years," adds Patrick.
A hot subject for years has been the minimum wage and the ability of people to live on this wage and raising the amount has been a long but futile battle for the Democrats until now.
"Historically, the Democrats have pushed to raise the minimum wage to make it a bit easier for average Americans to make a living," said Patrick. His opinion is that this is just 'a headline issue' that has little effect on the well-being of people. Patrick adds, "According to the Employment Policies Institute. less than one-percent of workers over the age of 25 work at the minimum wage."
In 1986 the tax system was changed and many of the deductions that were used to ease the tax burden where removed and taxpayers were presented with what is essentially a two-tiered flat tax system, says Patrick.
According to former Treasury Secretary Robert Rubin, the tax problems can't be solved without increased revenues. Patrick feels that while net taxes may increase, they probably won't increase in several areas. "One area where taxes may remain the same until they sunset in 2010 is the tax on capital gains and dividends." Patrick also projects that "while the House and Senate may attempt to raise these tax rates," the President has stated he will veto such action.
Patrick feels that an attempt may also be made to make higher education more affordable. "It's likely that the Democrats may try to increase the number and amount of grants available to low-income college students. In addition, when college students need to take out loans to pay for their education, it's likely that the Democrats may try to mandate lower interest rates on these loans," he says.
Patrick believes that "stalemate" may be the operative word in the next few years and he feels that neither the Democrats nor the Republicans have the numbers to effect any big changes, but attention must be given to the 2008 elections.