Debt Free

Well, today's the day. We finally get to stop being bombarded with those infernal political campaign ads. There's a strong chance that, when the dust settles, we'll have to stomach “Speaker of the House Pelosi”. Be that as it may, what you'd probably like to know is: How is having a Republican administration in the White House and a Democratically controlled congress going to affect you where it counts, in your bank (ING)account? Obviously, nobody really knows for sure, although we'll certainly find out, starting tomorrow, if it happens that way.

Fortunately, we have history as a guide in this regard. Having a split house and executive branch has happened before. Every time there was a Republican in the White House between 1954 and 1994, we had a similar situation. We've also had the reverse, a Republican Congress and a Democrat in the Oval Office. The last time that happened was in 1994, when the Republicans took control of Congress during the Clinton presidency. In that case, economic prosperity ensued. You'll get all kinds of arguments about why, depending upon whom you ask. The last time we had a sitting Republican president and Democratic houses of congress was during the Bush 41 presidency. That was the 102^nd congress. The Democrats had strong majorities in both houses, 55% to 45% in the Senate and 62% to 37% in the House. Let's take a look back at the fun that ensued during this time in the early nineties.

What about legislation? Was it really the gridlock you'd be led to believe? Well the Senate did manage to get Senate Amendment 1373 pushed through. Why is that important, you ask? Because it repealed the luxury excise tax on boats, of course. So, there was real work being done in the 102^nd Congress. Taxes went up (”Read My Lips!”). The AMT was raised to 24%. At the time, however, it wasn't snaring your average middle classer like it is wont to do today. Taxes on the whole were still lower than they were during the beginning of the Regan administration, however. In the mid 1980's, the highest marginal tax rate was around 50%! Regan changed this with the Tax Reform Act of 1986. By the early 1990's income taxes had dropped to 31%, even with the Bush tax increase(!).

How was the economy? Well, let's take a look at some general economic statistics. In 1991 and again in 1992, the U.S ranked 3^rd in the world in GDP per capita, behind stalwarts Lichtenstein and Bermuda. Well, they really don't have any population anyway, so they don't have to produce very much to take the lead in this category. The U.S. inflation rate for both 1991 and 1992 was 5.4%, and unemployment, 5.5%. The GDP growth rate was barely measurable, but it did exist, hovering at around 1%.

What about now? What's going to happen this time? In1994, the last time we had a divided government, there was a negligible, immediate effect on the economy. Can we expect as much this time, if, in fact, the Democrats regain control of either house of Congress? One issue that's almost sure to be on the table is the Federal Minimum Wage. This has remained unchanged since 1997, and some Democrats have indicated they'll likely try to raise it to $7.25 an hour. How will this affect you? Probably not directly, as I dare say few that frequent PF blogs make the minimum wage. It could cause a bit of a ruckus on Wall Street, though.

According to a CNN/USA Today poll taken last month, 2/3s of those polled expect the newly Democratic Congress to raise federal income taxes, yet only 25% of the polled support such a move. That would indicate that around half of those voters who chose the “Big D” candidates on the ballot were doing so in spite of their belief the candidate would do something they opposed, namely raise their income taxes. Interesting. What will probably happen after the election is that the new Congress will be so tied up in hearings over this or that action by the Republican administration, they'll get nothing done. We can only dream that, if the Democrats do take control, they will use the opportunity wisely. One can only hope that they can overcome their Anybody But Bush mentality and put together some programs and legislation that will help, and not themselves to more of our money, either.