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Ike Ikokwu

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How Politics Affects Your Personal Finance

Posted: 10/24/2012 2:35 pm

With just a couple of weeks before the presidential election, the obvious question is, have you picked your guy? Will it be Obama for another four-year term or will Romney win? Regardless of who your choice is, the real question is, have you taken into consideration how politics affects your personal finance? Because, whether or not "your guy" wins, you should still be aware of how politics as a whole affects your personal finance.

So in round two of the presidential debate, we saw a classic case of "political spinning." President Obama noted during the debate that he had called the attacks in Libya an act of terror the day after the incident. However, while in the media during the two weeks or so after the event, Obama and his cabinet members repeatedly refused to call it such. As it turns out, the speech Obama gave the day after the attacks talked in very generic terms about "acts of terror" without specifically calling the Libyan attack one.

You can call it a case of semantics if you choose, but it seems very odd and rather coincidental for the president to now point out that he had called the incident an act of terror all along, even if his subsequent responses in the weeks to follow were contradictory. The point is if you give a politician an inch, they are likely to take a mile if it will further their cause. The real issue is how much of this is played out when economic numbers are being reported and how that affects how you plan for your financial future. Are we getting the whole truth and nothing but the truth? Or, is the administration putting a "spin" to further its interests? Let's consider a few examples:

Unemployment Rate: The most recent report on unemployment showed a reading of 7.8 percent, the first drop below 8 percent in a while. This of course was touted as proof that Obama's administration has made significant strides to bolster the economy. However, if you look at the Bureau of Labor Statistics, you will notice that the U-6 reading shows that total unemployment remained unchanged at 14.7 percent while the U-3 reading shows the drop to 7.8 percent. The obvious question is which is the better reading? Take a look for yourself and you determine if because you gave up on a job search or that you were "under-employed," that means that you shouldn't be included in the "official rate?" You be the judge but I can tell you that some lawmakers are calling for changes to how the government reports the rate.

Inflation: The unadjusted 12-month reading on inflation for the past 12 months as of September 2012 was 2 percent. That is what is being reported by the government. This provides an interesting read on the accuracy of the CPI. Regardless of your take on this, a reality check should tell you "real inflation" is a lot higher. How much more have you paid for gas, bread, rice, meat and other items over the past 12 months? If you said 2 percent then I'd like to know exactly where you're shopping. Hopefully, you are using more realistic estimates in planning for your financial future.

Taxes: If you've listened to the rhetoric between Obama and Romney, you've heard each man talk about how they don't want to raise taxes on the middle class. Romney's been criticized for not providing specifics about how he'll lower tax rates and eliminate certain deductions to offset those lower tax rates while not creating an even greater burden on the government. Obama's been criticized for wanting to raise taxes. Each candidate is jockeying for position but regardless of who wins, this much I know to be true: Visit www.usdebtclock.org and look at our unfunded liabilities. The amount of tax revenue generated ($2.4 trillion) is only about 62 percent of the amount of interest ($3.9 trillion) we pay on our debt. At $121 trillion, our total U.S. Unfunded Liability for entitlement programs like Medicare and Social Security is more than 8 times our gross domestic product which sits at about $15 trillion. All the rhetoric aside, this much I know to be true: It's no longer a matter of IF taxes are going up as it is WHEN! So, if you're betting on paying less in taxes at retirement, perhaps you should reconsider that thought.

As we get closer to election day, make sure you exercise your right to vote. And if on the day after the election "your guy" doesn't win, do remember that there's more at stake than just "your guy" winning. Regardless of "who's guy" is in the White House, we should be more aware of how politics as a whole can and does affect our personal finance.

 

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