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The next U.S. President will make many decisions with major consequences to your pocket book. From taxes to health care, social security to immigration, and education to retirement, Your Money’s Guide to the 2008 Presidential Elections will describe each candidate’s position on these issues, with ample links to further reading. The focus of this site is smarter money management, and making an informed choice this November will likely be one of the most important money management decisions we ever make. You can subscribe to The Dough Roller via RSS feed or email so that you don’t miss a single issue.

Overview of Presidential Candidates’ Tax Policies

The tax policies of Senators Obama, Clinton and McCain fall along party lines. Both Senators Obama and Clinton would raise taxes substantially on those making more than about $100,000 per year, and particularly on those making more than about $250,000. At the same time, Senators Obama and Clinton have proposed various tax cuts for those making a middle or lower class wage.

In contrast, Senator McCain’s tax policy would not raise taxes. He has proposed various tax cuts, some of which would benefit those making less than $100,000 per year, and some benefiting those making more. In addition, Senator McCain would make it harder for Congress to raise taxes by requiring a 3/5 vote to do so.

As you evaluate the candidates’ tax policies described in more detail below, you may wish to consider the following:

• As of April 24, 2008, the U.S. national debt stood at $9,333,202,141,247.10 (Source: Treasury Direct).
• The top 20% of wage earnings currently earn 61% of the income and pay 73% of the income tax. The next 20% of wage earners pay 17% of the income tax.

Click on image to see supporting data
• By 2080, the cost of Social Security, Medicare and Medicaid will equal nearly 22% of gross domestic product (it’s currently about 8%).
• Under current projections, Medicare spending will exceed revenues from its dedicated tax by 2010, and its trust fund will be exhausted by 2018.
• Social Security will reach the same landmarks in 2017 and 2040, respectively.

It’s an understatement to say that the next President of the United States and the Congress will have some very difficult decisions to make. One of those decisions will be whether to continue with President Bush’s tax cuts, or to repeal them in whole or in part. For this reason, we’ll briefly look at President Bush’s tax cuts, and then turn to the candidates’ proposals.

President Bush’s Tax Cuts

Here are several key facts about President Bush’s tax policy and cuts since 2001:

• Congress has cut taxes every year since 2001. The most significant tax cuts came from the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003.
• Tax cuts since 2001 have reduced most individual tax rates including those on capital gains and dividends, expanded the child tax credit, phased out the limitations on itemized deductions and personal exemptions for high-income taxpayers, and phased out the estate tax. Virtually all of the cuts end by 2011.
• The tax cuts will reduce government revenue by approximately $2 trillion over the 2001–2010 period.
• President Bush’s tax cuts, on a percentage basis, benefited high-income earners the most, as indicated in the following table:

Source: Tax Policy Center

This last point has been the source of much of the debate surrounding President Bush’s tax cuts. Some view this as evidence that President Bush’s tax cuts favors the wealthy at the expense of the working class. Others note that the wealthy pay the vast majority of income taxes, and an across the board tax cut that benefits everybody in proportion to the amount of taxes they pay is fair and equitable.

2008 Presidential Candidates’ Tax Proposals

President Bush’s Tax Cuts

Senator Obama

He would repeal President Bush’s tax cuts for the top two income tax brackets. This proposal would change the top two brackets of 33% and 35% to 36% and 39.6%. Based on the 2007 tax brackets, these changes would increase taxes for single filers making more than $160,000 and joint filers making more than $195,000.

Senator Obama also would increase taxes on dividends and capital gains. In speeches, Senator Obama has expressed his concern that the government taxes income from work more than it does income from investments. He would change this by returning to the Clinton-era tax rates for dividends and capital gains.

Finally, Senator Obama would freeze estate tax at 2009 levels and extend the cut after 2011.

Senator Clinton

She would also repeal President Bush’s tax cuts for the top two income tax brackets. Senator Clinton also would repeal the PEP and Pease phaseouts for households making more than $250,000. The PEP (”personal exemption phase-out”) provision prevents high-income earners from claiming a personal exemption ($3,200 in 2005) for each member of their household, and the Pease (named after former Rep. Don Pease (D-OH)) provision limits the value of itemized deductions for taxpayers with high incomes. Senator Clinton also would freeze estate tax at 2009 levels and extend the cut after 2011.

Senator McCain

He would make permanent the Bush tax cuts on both income and investments.

New Tax Cuts

Each candidate has proposed various new tax cuts. Senators Obama and Clinton’s tax cuts focus on the middle and lower class wage earners. Senator Mccain’s tax cuts focus on all levels of income earners.

Senator Obama

1. Making Work Pay tax credit: A refundable tax credit of up to $500 per person, or $1,000 per family. Senator Obama estimates that this will benefit 150 million workers and that for 10 million Americans, it will completely eliminate income taxes. Senator Obama has not indicated what income limits will qualify an individual or family for the “Making Work Pay” tax credit, but it’s clearly intended for the middle and lower class wage earners.
2. Expand the Child and Dependent Care Tax Credit: This credit currently covers up to 35 percent of the first $3,000 of child care expenses a family incurs for one child and the first $6,000 for a family with two or more children. Senator Obama proposes to make the tax credit refundable and allow low-income families to receive up to a 50 percent credit for their child care expenses.
3. Eliminate Income Taxes for Seniors Making Less Than $50,000: Senator Obama proposes to eliminate all income taxation of seniors making less than $50,000 per year.
4. Expand the Earned Income Tax Credit: Senator Obama would increase the number of working parents eligible for EITC benefits, increase the benefit available to parents who support their children through child support payments, and reduce the EITC marriage penalty. Full-time workers making minimum wage would get an EITC benefit up to $555, and those supporting children would get a benefit of $1,110.
5. Universal Mortgage Credit: This 10 percent credit will provide the average recipient with approximately $500 per year in tax savings, according to Senator Obama. It will a refundable credit for those who do not itemize their deductions.
6. American Opportunity Tax Credit: This universal and refundable credit will pay for the first $4,000 of college tuition for most Americans. It is unclear exactly who would be eligible for this tax credit.
7. Expand the existing Savers Credit: Senator Obama proposes to match 50 percent of the first $1,000 of savings for families that earn under $75,000 and to make the tax credit refundable. The savings match will be automatically deposited into designated personal accounts by using the account information listed on IRS tax filings.

Senator Clinton:

1. Health Care Tax Credit: As part of Senator Clinton’s health care proposal, she wold create an income-related refundable tax credit for health insurance, new health care tax credit for small businesses to insure employees, and new tax credit for qualifying private and public retiree plans under health plan
2. American Retirement Accounts Plan: Under the plan, individuals could contribute up to $5,000 per year on a tax deferred basis, and the first $1000 contributed into the accounts would be matched by the government on a 50%or 100% basis, depending on eligibility.
3. College tax credit: Senator Clinton would implement a $3,500 partially refundable college tax credit.
4. Reform AMT: Senator Clinton has said she would reform AMT “to ensure people don’t face stealth tax increases.”

Senator McCain:

1. Repeal AMT: Senator McCain would permanently repeal the Alternative Minimum Tax.
2. Raise personal exemption: He proposes to raise the personal exemption for each dependent from $3,500 to $7,000.
3. Reduce corporate tax rate: Senator McCain would reduce the federal corporate tax rate from 35% to 25%.
4. Ban Internet Taxes: Senator McCain would seek a permanent ban on taxes on the Internet.
5. Ban New Cell Phone Taxes: He also would seek to prohibit new cellular telephone taxes.

New Tax Increases

Apart from Senator Clinton and Obama’s proposal to repeal President Bush’s tax cuts, the most significant tax increase proposal comes from Senator Obama. Specifically, he proposes to raise the social security payroll tax. Currently, the Social Security payroll tax applies to the first $102,000 a worker makes. Senator Obama would raise this limit, although he has not indicated by how much.

Additional Reading

Here are some additional sources if you’d like to explore further the presidential candidates’ tax policies:

• Tax Foundation’s comparison chart of the candidate’s tax proposals.
• Tax Policy Center’s comparison chart of the candidate’s tax proposals.
• CNN Money’s analysis of the candidates’ tax proposals.

Managing money between a husband and wife can present some real challenges. Have you ever found yourself at the store or gas station ready to pay, only to realize that the last $20 in your purse or wallet is gone? It’s a sickening feel in the pit of your stomach when you realize you can’t pay for something. This happened to my mom all the time when I was a kid.

My parents went from one financial crisis to another and were always short on cash. I recall vividly my mom yelling at my step-dad because he had taken money out of her purse and left her with nothing. She usually figured out that she had no cash just after putting $5 worth of gas in the car (gas was a lot cheaper back then). A resolution to this problem always seemed simple to me, even if it eluded my parents. So here are some tips if you or your spouse are regularly raiding the other’s money supply:

1. Communicate: If you need cash, don’t just take it from your spouse without talking to them first. We all find ourselves without cash from time to time, but taking your spouse’s money without asking (or at least telling) them, is just plain rude. In a pinch, at least leave a note if for some reason you can’t speak to them right away.

2. Plan: Often times, a spouse is out of cash for lack of planning. Occasionally this happens to us all. But if it’s a regular occurrence, then you need to rethink how you’re managing your money. My wife always keeps a $20 reserve for emergencies. If she needs to use it, she makes sure to replenish it as soon as possible.

3. Use a Debit Card: We use a MasterCard debit card that is tied to our checking account. We also have overdraft protection just in case we run a negative balance just before payday. With the debit card, we are never out of money as long as we can get to an ATM or don’t have to pay cash for what we’re purchasing.

4. Carry a Credit Card: We also carry a credit card just in case. I know there are some who view credit cards as evil. I don’t, although we do pay off our credit card balance each month. But carrying a credit card can come in handy during an emergency, particularly when we are traveling.

5. Respect Each Other: Money is one of the biggest causes of strife in a marriage. Taking money from a spouse without communicating with them can understandably be a serious source of conflict. It may be a quick an easy solution to a money shortfall, but the harm it can do to your relationship in the long run is not worth it. In the end it comes down to mutual respect.

6. Keep a Change Jar: We have a change jar where we dump our change at the end of the day. Over time, the amount of money in the change jar can grow and come in handy when you’re in a bind. I sometimes need to pay $5 in cash to park my car at the subway, and I’ve tapped the change jar more than once when my wallet was empty.

Do you or your spouse take money from the other without asking? Cast your vote, and then leave a comment if you’ve had to confront this issue in your marriage.

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Update: This article was featured as an Editor’s Pick in the 58th Edition of the Carnival of Money Stories.

Your home equity line of credit can be reduced or canceled if your finances take a turn for the worse, which reminds me of the Seinfeld episode when George Costanza pushed an elderly woman, a clown and a room full of children out of his way so he could escape what he thought was a blazing fire. The clown ended up dousing the blaze with his big shoe. When you think of your home equity line of credit, you should be reminded of George. In an emergency, your home equity line of credit may be the first thing to leave the room.

A few weeks ago, the Wall Street Journal published an article about home equity lines of credit. The article described how some financial institutions were reducing the available credit on home equity lines for borrowers who were having financial trouble. My first reaction was to assure myself that such a fate would never befall me. I pay my mortgage and home equity line of credit on time each month. In fact, I’ve never had a late payment in the four years since I bought my current home, and I even pay the bills automatically from my checking account each month. But then I started to wonder what would happen if I lost my job and started paying some bills late. Would my mortgage company take away my available line of credit?

So I dug through my old files and pulled out my mortgage documents. On page 3 at the bottom of my home equity line of credit agreement, under a heading labeled “Possible Actions,” I found this eye-opener:

We may refuse to make additional extensions of credit or reduce your credit limit if:

• The value of the dwelling securing the line declines significantly below its appraised value for purposes of the line.
• We reasonably believe that you will not be able to meet the repayment requirements of the line due to a material change in your financial circumstances.

So if housing prices decline significantly, my mortgage company (which is a large, well known financial institution) can reduce my credit limit. And if I lose my job, the mortgage company may also be able to reduce my credit limit. In other words, if I hit on hard financial times, just like George, my home equity line of credit may be the first one out the door.

Now I don’t lie awake at night worrying about this, and I’m not suggesting you do, either. But as housing prices continue to fall and inflation moves higher, sound money management dictates that we spend some time evaluating just how you would handle a real financial crisis. How much do you rely on your home equity line of credit as an emergency fund? Do you know how much money you need each month to handle the necessities? If not, check out my approach to an emergency fund.

It’s been some time since I shared with you some of the articles and websites that I’ve found interesting or helpful. The holidays were an extremely busy time for us, due in part to a family emergency (everything is fine now). So since Mrs. Dough is away for the weekend and the kids are still sleeping, I thought I’d take a few minutes to link out to some websites and blog articles:

• Self Made Minds: This is a great site if you’re interested in making money online. The guys who run this site have a lot of experience running very successful online businesses. And when I’ve e-mailed them with questions, they’ve responded with some great insights. I’ve literally read every article on the site.
• Farecast: This site will tell you when the best time is to buy a plane ticket. At times, it has even suggested that I wait a few days for a lower price. In my experience, Farecast has been accurate with it’s predictions.
• Personal Finance Blogosphere Best of 2007: Pinyo over at Moolanomy published a great post showcasing some of the best of the best personal finance blog posts of 2007.
• Get Free Financial Advice From Kiplingers And H&R Block This Month: My Two Dollars reported that Kiplinger’s and H&R Block are offering some free money advice. Check out the details at MTD.
• Teaching Preschoolers About Money: Paid Twice has a nice article about preschoolers and money. I guess it’s never too early to start establishing sound money habits.
• How to kiss your debt goodbye this year: Gather Little by Little describes how to get out of debt this year. If that’s your goal, read the article.
• An Easy Way to Reduce Vacancies and Rental Property Turnover: At my real estate investing blog (yes, this is shameless self-promotion), we wrote about how to motivate tenants to sign long term leases.

Enjoy!

Recently I described how I overcame my fear of P2P lending. One factor that encouraged me to dive into P2P lending was Prosper’s new Portfolio Plans. With these plans, you can quickly and easily select the types of loans you want to make, and then leave all of the hard work up to Prosper. Today I’m going to walk through the Portfolio Plan I created, explain why I made the decisions I did, and provide step-by-step screenshots of the process. If you are interested in using Prosper’s Portfolio Plans, this guide will show you everything you need to know. So let’s get started. Read the rest