Dear President-elect Obama: Here's How to Get the Economy out of the Ditch
In little more than two months, President-elect Barack Obama will take the oath of office with virtually no time to bask in his historic accomplishment of being the first African American elected to the highest office in the land. His first term will begin amid what are arguably the most challenging days for a newly elected president since Franklin Roosevelt's inauguration in 1933, during the depths of the Great Depression. Obama seeks to lead a nation mired in a worsening recession and burdened by the costs, both financial and human, of two wars and rising debt. The president-elect will need to confront these problems while delivering on the hopeful message he sold to his legion of supporters, weighing campaign promises to cut middle-class taxes and increase access to health care.
While considering what advice to give President-elect Obama as he prepares to take office, many Wharton faculty agree that his first 100 days in office -- if not longer -- will be dominated by the aftershocks from 2008's credit crunch and the steep market declines on Wall Street. This month's grim financial news -- including an October jobless rate of 6.5%, the highest in 14 years, and double-digit declines in retail sales -- makes it likely the new president will focus on stimulating the economy.
Given the array of problems that the Obama administration will confront, what should its priorities be? How much will the new president be able to spend on programs like alternative-fuels research or middle-income tax cuts without driving the federal deficit to unmanageable depths? And how will those short-term spending decisions affect his ability to deal with a long-term crisis -- trillions of dollars in obligations to retiring Baby Boomers as they enroll in Medicare and Social Security? A growing number of commentators contend that Obama's success in dealing with the economic slowdown will affect his policy decisions in other areas.
Wharton finance professor Jeremy Siegel, author of the book The Future for Investors, advises the Obama administration to move quickly on a large, one-time tax cut or rebate check program for low- and middle-income Americans as a way to keep the just-starting recession from worsening. While he also supports the large-scale infrastructure and alternative-energy programs that are under discussion as an economic stimulus, Siegel notes that those programs will take much longer to start up.
He offers another piece of advice to help Americans suffering from steep declines in the stock market: Dramatically increase the annual capital loss deduction limit on income taxes, which is currently capped at $3,000. He says that $10,000 might be a more appropriate level in the current economy. "Even $10,000 is not enough to compensate for the inflation of the last 20 years, but it's one thing that would help."
He would also like to require any banks receiving money from the government's $700 billion package to continue making loans to their most creditworthy customers. But one plan he would urge the Obama administration to reject is the proposal to extend bailout monies to the troubled auto industry. Chapter 11 bankruptcy would allow Detroit to reorganize but not cause the massive job losses feared by some, he states. "Any bailout of the auto industry is really a bailout for the health benefits of the UAW [United Auto Workers]. That's all it is."