President Barack Obama and former Massachusetts Gov. Mitt Romney have very different visions of how policies related to taxes, health care and Social Security will affect your clients' well-being. Pundits virtually all agree that the election next week will be won or lost on domestic economic issues — the very issues your clients will be eager to discuss once the victor is chosen and planning decisions get a fresh look.
Both candidates' agendas have to be assessed within the context of the government's fiscal situation. With the national debt now topping $16 trillion and a budget deficit of more than $1 trillion this year, Mr. Obama and Mr. Romney agree that the government must get its fiscal house in order.
Whether the winning candidate follows through on his agenda is another matter — one that depends to a large degree on the outcome of congressional elections. Mr. Obama's budgets could continue to be rejected by the House of Representatives, which is expected to remain in Republican control. Mr. Romney's plans for tax and entitlement reform could be stymied by the Senate, which many expect to remain in Democratic control. A divided Congress likely would force either candidate to compromise on his positions.
As the election approaches, here's where the presidential candidates stand on three major financial issues.
Mr. Obama's position on taxes is clear: Wealthy Americans should pay more. He wants to undo the Bush-era tax cuts for “high-income” individuals — those making more than $200,000 annually (and married couples making more than $250,000).
Mr. Romney wants to make the Bush tax cuts permanent and reduce them another 20%. He has said his plan would be revenue- and distribution-neutral, meaning it wouldn't cut revenue to the government or reduce the share of federal taxes paid by wealthy people. He would offset the lower rates by capping or eliminating tax deductions and credits but hasn't specified which ones are on the table.
• Increase tax rates for high-income Americans: 33% rises to 36%, 35% goes to 39.6%.
• Cap deductions and tax preferences for individuals at 28%.
• Replace the alternative minimum tax with Buffett rule. Individuals making over $1 million would be subject to a 30% effective tax rate.
• Raise tax rates on dividends and capital gains for high-income taxpayers to their ordinary income tax rate and 20%, respectively.
• Return estate tax exemption to 2009 level of $3.5 million, from $5 million, at a rate of 45%, from 35%.
• Apply Medicare taxes of 0.9% on earned income and 3.8% on investment income over high-income thresholds.
• Cut corporate tax rate to 28%, from 35%; close unspecified deductions and credits.
• Cut all individual tax rates by 20%: top rate falls to 28%, from 35%, bottom bracket to 8%, from 10%.
• Offset lost revenue by eliminating or reducing unspecified deductions and credits.
• Repeal the alternative minimum tax.
• Eliminate all investment taxes (dividends, interest and capital gains) for people earn- ing less than $200,000. Maintain current investment tax rates for high-income taxpayers.
• Repeal estate tax.
• Repeal the Affordable Care Act and associated Medicare taxes (0.9% payroll and 3.8% unearned income) on high-income Americans.
• Cut the corporate tax rate to 25%, from 35%.
Mr. Romney has said he will repeal the Patient Protection and Affordable Care Act, better known as Obamacare. That's not without irony, given that the health care reform Mr. Romney implemented as governor of Massachusetts paved the way for the president's very similar health care bill, said Judith Feder, a professor of public policy at Georgetown University and a fellow at the Urban Institute.
Mr. Romney has said the Massachusetts plan was appropriate for that state but that he would leave it up to other states to craft their own health care solutions.
• Maintain support for the Affordable Care Act and its provisions outlined below:
• Require approximately 30 million uninsured Americans to purchase insurance; they can do so through state insurance exchanges beginning in 2014. Provide subsidies and tax credits for low-income earners.
• Continue to allow coverage of children up to 26 under parents' insurance policies.
• Require insurance companies to cover people with pre-existing conditions.
• End annual and lifetime health care benefit limits for insured individuals.
• Gradually close the more than $4,000 “donut hole” in Medicare prescription drug coverage.
• Expand Medicaid coverage beginning in 2014 to people earning as much as 138% of the federal poverty level.
• Repeal the Affordable Care Act.
• Provide incentives for uninsured individuals to purchase insurance.
• Allow people to purchase insurance policies across state lines.
• Gradually shift Medicare toward a premium support or voucher system in which seniors receive fixed amounts of money to purchase private insurance. Traditional fee-for-service Medicare would remain an option, but if premium costs exceed those of private plans, seniors would pay the difference.
• Continue to allow coverage of children up to 26 under parents' policies.
• Require insurers to cover people with pre-existing health conditions who have been insured continuously.
• Provide states with block grants to finance their own plans for Medicaid.
The Social Security Administration projects that, given current demographic trends, the program's trust funds will be depleted by 2033. Without changes to the system, retirees will receive only 75% of promised benefits beyond that year. The trust funds can be shored up by changing eligibility rules, reducing benefits or increasing revenue to the funds.
• Has not laid out specific actions to bolster the Social Security trust fund but is willing to discuss ideas to stabilize the program.
• Would not reduce benefits for future retirees.
• Does not favor any privatization of Social Security accounts.
• Told those attending an AARP conference that he is open to the idea of raising the cap on earnings subject to the Social Security tax from the current $110,100.
• Would not change benefits and eligibility rules for current seniors and those over 55.
• Would slowly increase the retirement age for benefit eligibility for people who were under 55.
• Would reduce the growth in benefits for higher-income earners.
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