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State Of The Union 2012: 3 Talking Points That Could Impact Your Finances

The State of the Union Address has long provided the President with the opportunity to present his legislative agenda and communicate policy objectives. The most recent Address was no exception. With election year politics in full swing and limited time with a captive audience, the President laid out a broad range of goals, hopes, and directives.

Regardless of party affiliation or your interest in politics, here are three topics receiving mention in the address that could affect you and your finances in some way:

Taxes

President Obama proposed a tax rate of no less than 30% for anyone making over $1million dollars, while stating taxes should not go up for anyone making less than $250,000 per year. While the details of this plan remain unclear, most would agree that some level of tax reform could be beneficial. With the current level of political division in Washington it's difficult to imagine any type of meaningful reform could gain bipartisan support, at least in the near future.

Throughout 2011 most employees benefited from a 2% reduction in the social security tax withholding rate. This provided slightly larger pay checks for many. This tax reduction was set to expire at the end of 2011, but after much political bickering was extended through February 2012. This means another large-scale political battle is likely on the horizon about whether to extend this payroll tax cut beyond February. Without agreement on an extension, the social security tax rate for employees will return to 6.2%.

Housing

The housing market continues to drag on an economic recovery struggling for traction. With mortgage interest rates at historical lows, the President stated he is sending Congress a plan allowing every responsible homeowner a chance to refinance and save approximately $3,000 per year. The hope is this will free up money for homeowners and encourage them to remain in their homes. Potentially, this could help stabilize the market and boost confidence for weary homeowners and homebuyers. The concern for some is that because of the decline in home values many owe far more than what their homes are currently worth, a potential obstacle for refinancing.

Student Loan Interest Rates

We have heard a lot of talk lately about students burdened with mountains of student loan debt. The College Cost Reduction and Access Act of 2007 provided for annual reductions in the interest rate charged on new subsidized loans starting in school year 2008-09 and ending in 2011-2012. This act reduced the interest rate on subsidized loans originated in 2011-2012 to 3.4%. Currently, this is set to expire at the end of July 2012 which means the interest rate on subsidized student loans originated after July this year could see interest rates up to 6.8%. With the cost of a college education soaring, students and parents are relying more and more on loans to meet financial obligations. A significant increase in interest rates means more costs for an already costly higher education.

If history is any indicator we can look forward significant political debating regarding these issues and many others in the coming months. As we frequently remind our readers, have a plan based on your own financial needs and goals. Try to steer away from making decisions based on the latest headlines

Randy Schaller

Investment Adviser

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