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YOUR BOTTOM LINE
President Obama's Economic Stimulus Package; What Will Obama and His Administration Do to Help Housing?; Tracking Obama's Promises From the Campaign Trail; Three Million Jobs: Is That Enough?
Aired January 24, 2009 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
GERRI WILLIS, CNN HOST: Hello, I'm Gerri Willis and this is YOUR BOTTOM LINE, the show that saves you money. Every weekend, we'll be here to help you save, protect, and build your money. Our promise to you, spend 30 minutes with us and you'll leave armed with all sorts of valuable info that will save you money. From your house to your job, your savings, and your debt, this is YOUR BOTTOM LINE.
President Barack Obama is settling into the new Oval Office and the new Congress is just starting their work and, boy, do they have a lot of work to do. Nearly 600,000 people filed for first-time unemployment benefits last week, that's the highest number in 26 years, since 1982. And housing starts, the number that measures new home construction in the U.S., fell for the lowest number on record. That's dating back to 1959.
Now, whether either of those numbers effect you, chances are you have some concerns about what the new administration and their counterparts on Capitol Hill will mean to your bottom line. Let's get right down to it. Janice Revell is a senior writer with "Money" magazine, Mike Santoli is a senior editor at "Barrons" and Manisha Thakor is a personal finance expert and author of "On My Own Two Feet."
All right guys, welcome to all. We've got a lot to talk about, today. I want to start with the brand new $850 billion stimulus package. This is different than what we saw last time around. You're not going to your mail box to pull out a big, fat check, right?
MIKE SANTOLI, SR. EDITOR, BARRONS: That's right. No, the part of it that really addresses households and their money is withholding will be reduced. So, you'll have a little more in your take home pay if the plan goes through as thought. A thousand dollars maybe per family, I think, is what we're talking about.
So, it's going to be a little bit better than a lump sum check. Research shows that that doesn't get spent as often, but it's nothing but an offset to the economic weakness, it's not going to actually swing things back in the economy's favor.
WILLIS: Won't swing things back in the economy's favor, so we're still looking for some help, here. Manisha, you say that this isn't going to happen tomorrow and certainly President Barack Obama has done nothing but dial back expectations. When can we expect that these improvements will actually help the economy? MANISHA THAKOR, AUTHOR, "ON MY OWN TWO FEET": Well, it's really important for Americans to understand that we've got a two step process going on. First of all, there's some short-term issues that we're going to deal with, jump-starting the economy. We've had kind of a financial heart attack and now the defibrillator is coming in. But the long-term solutions, they're just going to take time, they've got to work their way through the legislative process.
WILLIS: So, what are you talking about? A year, two years, five years, 10?
THAKOR: It's anybody's best guess. We're hoping within this first two-year period we'll see some meaningful effects, but there are no guarantees.
WILLIS: OK, Janice, I want to talk about housing, that's very close and near and dear to our hearts here at YOUR BOTTOM LINE. One in 10 mortgages in this country are either in foreclosure or late on payments. What are they going to do to help housing? This has been one item that has been off the table for a while.
JANICE REVELL, SR. WRITER, MONEY: It's been off the table and it's incredibly important because we cannot get out of this economic malaise until we stem the hemorrhaging in the housing market. It doesn't even need to improve, we just need to stop the bleeding. And what hasn't happened yet has been any kind of direct attack on the foreclosure crisis.
So, going in and actually modifying loans in a big way. It's a very controversial move, but I think there's no question that the new administration is going to attack that front in a very big way.
WILLIS: How so, though? What do we have on tap?
REVELL: Well, one of the things that Obama has made clear he wants to do is go in and modify mortgages in bankruptcy. That's a big one. Another thing is the plan that has been proposed by the FDIC chair, Sheila Bair, which would actually, the government will come in and underwrite mortgages that have been modified and guarantee 50 percent of those, very, very big moves in that way.
WILLIS: Interesting stuff. So Manisha, you're a fan of this universal mortgage tax credit. And just to be clear here, because we talk about deductions on the show all the time, but tax credits, dollar for dollar reducing your taxes where a deduction just reduces your total taxable income. What would this particular tax credit do?
THAKOR: So, this is huge because it broadens the true benefit of home ownership. What a lot of people don't realize is the mortgage interest deduction only happens if you itemize your taxes. Two-thirds of us take the standard deduction. This helps level the playing field.
WILLIS: All right, so more folks will get that benefit from owning a house on their taxes. That's a good thing. Mike, I want to talk about mortgage rates. They had come down, they're moving back up, here. But the Treasury had said, hey, you know what? We really think 4.5 percent would be a great area for mortgage rates. Does the new administration agree?
SANTOLI: I think that they're maybe trending in that direction and you know, with the government having essentially taken control of Fannie and Freddie, I really think they can use that as an instrument to implement just low rate mortgages.
The thing is, that's the supplier of mortgage debt. The demand is not evident right now that it's all over the place. In other words, yes, people are happy to see prices come down. It's become more of a buyer's market, but the mentality has set in. I don't think there's a rush for new home purchases.
WILLIS: Yeah, I see that, too. So, Janice, you can't kick up your heels quite yet if you're a seller, right?
REVELL: No, I totally agree with what Michael said. And you know, you look at home ownership rate in this country right now it's already at about 68 percent. It's not like there is a ton of pent-up demand out there. And I think that no matter what the Obama administration does, we're looking at a continued decline to housing prices probably at least through 2009, maybe even 2010.
WILLIS: Wow. OK, bad news there. But, maybe some of these solutions will be some great traction against that.
Manisha, I want to talk to you about credit card bill of rights. If I can tell you if there's one e-mail in my inbox about credit cards, people complaining about them, there are 20. Is a bill of rights in the works and what would it mean?
THAKOR: Thank goodness. It is smack on the center of the Obama agenda when it comes to this component of our personal finance. What it means to this is credit cards can again become your friend not your foe. If we get rid of universal default clauses which basically say you're late on any bill, your interest rate goes up. If we start having fair and timely crediting of credit card payments, if we cease to have interest rate charges applied to finance charges these things will help Americans in spades.
WILLIS: All right, well lots of great conversation, guys. Really appreciate it. Janice, Manisha, Mike, stick around. A new president, a new Congress, but don't for a second think we're going to stop examining their policies to see if lawmakers in D.C. are following through. We're separating fact from fiction.
WILLIS: When it comes to jobs, President Obama has made a lot of promises on the campaign trail. So, which ones has he kept? Which ones are in the works? And which seem to have just stalled? Well, tracking all these promises in Washington is Bill Adair, editor of PolitiFact.com. Bill, great to see you.
BILL ADAIR, POLITIFACT.COM: Thanks for having me.
WILLIS: Let's start with the idea we would extend these jobless benefits and even make it so that people didn't have to pay taxes on those benefits, which is one of those things really hated. Any traction on that?
ADAIR: Yeah, there's been some. This promise has -- it was included in the stimulus bill that Congress is considering, at least as it relates to extending unemployment benefits by 13 weeks. The tax break, however, is not included, so it will be interesting to see what happens with that. For now, we have rated this "in the works" on our new "Obameter" on PolitiFact and will be watching it and we'll see what happens when the bill finally passes.
WILLIS: OK, I got lots more questions for you, here. The president, now, promising the creation of five million jobs, green jobs, any traction there?
ADAIR: Well, this one is a good example of some of the really sweeping promises that Obama made. He made some very specific ones and he made some very broad ones like this. He's proposing to do this through a variety of incentives from the government and actual government programs. At this point we have this one rated "no action," but I think we'll begin to see some things on this soon, once the stimulus bill gets going.
WILLIS: All right. Well, he hasn't been in office that long, right? Let's talk about a tax credit for employers who actually go out and hire people. Now, that seems like a no-brainer. What's going on with that?
ADAIR: Well, his promise, and this came late in the campaign, when the economy really slowed down, his promise was to provide a $3,000 tax credit for employers for each new job they add. But, it's run into considerable opposition in Congress and, really, is -- it may be dead. At this point we've rated it "stalled" on our "Obameter," but it may be headed for his first promise broken. We'll be watching that one closely.
WILLIS: OK, all right. Well, I'm glad you're going to keep up with that. What about a tax rebate for the middle class? Now, this hits home. This is money in your pocket. Is it going to happen?
ADAIR: It looks like it will. This was included in the stimulus package that came out shortly before President Obama was inaugurated and so we have rated it "in the works" on the "Obameter." I think this is headed for a promise kept pretty quickly once the stimulus bill passes.
WILLIS: All right, Bill Adair, thank you for that. We appreciate your help, today.
ADAIR: Thanks for having me. WILLIS: President Obama and his administration have only been in the White House, well, a few days, as we said. But, we'll tell you what could be in the works right now for your healthcare, your job, your bottom line.
WILLIS: This is YOUR BOTTOM LINE, the show that watches out for your money. And from the latest CNN Opinion Research Corporation poll on the economy, you are definitely concerned.
CNN's senior political analyst, Bill Schneider explains.
WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST (voice-over): Spend we must, President Obama says.
BARACK OBAMA (D), PRESIDENT OF THE UNITED STATES: At this particular moment, the only government can provide the short-term boost necessary to lift us from a recession this deep and severe.
SCHNEIDER: Does the America public support big new federal spending on construction projects and economic assistance? Yes, 58 percent, although most Republicans balk at the idea.
REP. MIKE PENCE (R), INDIANA: House Democrats apparently believe we can borrow and spend our way back to a growing economy.
SCHNEIDER: The president's plan also includes big tax cuts. What happens if we add those to the mix? Public support jumps to 71 percent, and the consensus broadens. Republicans say tax cuts? We're in.
REP. MARY FALLIN (R), OKLAHOMA: We, on the Republican Study Committee, believe that borrowing and spending is not the answer and that the quickest and the proven method to stimulate our economy is by cutting taxes.
SCHNEIDER: Without the tax cuts the economic stimulus plan is a partisan plan. With the tax cuts, it becomes bipartisan. That's the politics. What about the economics? Are tax cuts the most effective way to stimulate the economy? We asked people if your taxes were cut by $500, what would you do with the money?
Only 20 percent say they would spend it. That's not much of a stimulus. The rest say they'd pay off bills or save the money. No stimulus there. Tax cuts broaden support for the stimulus plan, but may not have as much economic impact.
The tax cuts are in the plan because President Obama promised them and because he knows that for any new policy to survive over the long term, it has to have bipartisan support. That's not economics, that's politics.
(on camera): The plan will certainly increase the deficit. By nearly two to one, Americans say the government should balance the budget, even at a time of recession and war. Has the American public ever said it's OK to run a deficit? Yes, narrowly, in January, 2002, a few months after the 9/11 attacks.
Bill Schneider, CNN, Washington.
WILLIS: Big programs, big costs. Back now with our panel. Janice Revell from "Money," personal finance author, Manisha Thakor, and Mike Santoli from "Barrons."
OK, guys. You know, interesting that, you know, folks are a little concerned about how this is going to work out and how we're going to pay for it. One the big programs, of course, what there are so many questions about is jobs. The president says that he's going to create three million new jobs. Is that enough?
SANTOLI: Well, is it enough? It's probably unimpressive for a typical economic recovery, three million jobs over many months or a couple of years, but I do think it's impossible to count. Really, we don't know how many other jobs would otherwise have been created absent the programs. I view it as any infrastructure spending program or potential business tax cuts would be a help that would offset job losses that are going to happen anyway this year.
WILLIS: But does it really make sense to spend all this money? At the end of the day is this really going to benefit the taxpayers?
SANTOLI: In terms of the government spending programs like infrastructure projects I think you should only do what makes sense anyway. In other words, if it makes sense absent any stimulus effect, because it could promote economic growth down the road, fine, but don't expect short-term stimulus boosts out of it.
WILLIS: No stimulus boosts out of it, but do what needs to be done. Janice, that's an interesting thought. I know you've been thinking, too, about what people should be doing now and one of the big concerns, certainly jobs, here -- bad numbers this week on the jobs front. And folks who are new to the job market, people who are in the middle of their career, everybody's concerned. What's your advice for them?
REVELL: Right. Well, certainly it's easier if you're new to the job market and you're, say, still in college, certainly things like healthcare, education, government jobs, of course, are look great right now, engineering, you know, these types of things are hot the way banking used to be.
I think certainly if you're midcareer it's much more difficult, you can't just quit your job as a marketing executive and go out and start installing solar panels. But, there are things you can do in terms of taking a look at your skills and how they may be transferable to areas that are hot right now.
So, for instance, if you are in sales or if you're in finance, you know, how can you apply your skills to the healthcare industry or to public financing type projects? And I think if you look kind of outside your own little arena at ways you can transfer your skills, you'll see that there are probably some opportunities there.
WILLIS: Well, it's all about flexibility in this economy and one of the things that's on this list of programs, ideas, jobs that need to get done, is healthcare. Don't forget, we were talking about a very big investment in universal healthcare, can that even be on the table - Jan.
REVELL: Well Gerri, I don't know where the money is going to come from, that's the problem. You know, we've got -- we're looking at, right now, at least a $1.2 trillion deficit this year, it's a record, you know, that's before we even get into even talk about healthcare. I think certainly Obama is going to do things to help unemployed people, like extending cobra benefits those kinds of thing, but addressing universal healthcare? I'm skeptical.
WILLIS: All right, I want to talk about a topic close to your heart, Manisha, that's financial literacy. If there's anything we've learned from this debacle, it's that, Americans need to understand money better, is there anything out there to help them come to grips with this besides, of course, YOUR BOTTOM LINE?
THAKOR: If there was ever a teachable moment, this is it. And as it moves its way through the legislative process, there's going to be a lot of finger pointing. So, the best thing that each of us as Americans can do is remember, when you point a finger, three are pointing back at you. And so, get educated about personal finance.
The government has a wonderful Web site, MyMoney.gov, it's only going to get better. The president has a council on financial literacy that's looking to make this an increasingly robust site, where average Americans, we can go, we can learn, what are some steps that we can take to get ourselves on the path to financial nirvana.
WILLIS: Well, the path to financial, you know, health, would be enough, I think, here. Mike, what's your advice to individual investors in this economy, right now. Because, don't forget, we're not just trying to pay the bills for this week, we're trying to pay the bills for our retirement, too.
ADAIR: Yeah, to me it's about re-evaluating, using this sharp decline in all markets, really, to re-evaluate your risks tolerance and to decide exactly how long you want to...
WILLIS: Mike, I hear that all the time. OK, I know that my risk tolerance isn't what it should be. So, what do we do about it?
ADAIR: Oh, no, no. I'm saying if you were so thrown off by the decline that it really compromised your near-term finances, I do think you have to be a little more balanced and don't, you know, for example, put the majority in the stock market.
I do think, though, we've lost money in the stock market, the indexes have, on a 10-year basis, looking back. That's almost never happened, and to me what that means is the long-term reversion into the normal trend is actually a tail wind, now. But I have stressed longer-term, five plus years.
WILLIS: All right, well, I like ending on that very up-beat note. The there are good things coming, good things down the road. I want to say thank you to any panelists today, really appreciate your help. Thank you so much.
Before we change gears, President Obama along with wife, Michelle, and daughters, Sasha and Malia, moved into their new home this week. So, we thought we'd take a look at what the White House is worth.
Real estate Web site Zollow.com says America's most historic home is worth a grand total of more than $308 million. With 55,000 square feet, 132 rooms, 35 bathrooms, 16 bedrooms, three kitchens and of course a prime location in Washington, D.C.
President Obama would need to make far more than his presidential salary of $400,000 to afford that house.
Now, it may only be January, but if you want to do your taxes the right way, now is the time to prepare. What you do and do not need to be doing right now to get a head start on those tax returns.
WILLIS: Unless you really like numbers, the last thing most people look forward to is doing their taxes. So, what are the new rules and deductions you need to save you money. Barbara Weltman is tax attorney and contributor to "J.K. Lasser's Income Tax Guide for 2009."
Barbara, welcome, good to see you.
BARBARA WELTMAN, AUTHOR "J.K. LASSER'S INCOME TAX GUIDE FOR 2009": Thank you.
WILLIS: Now, you say, and I think this is very interesting, that if you missed out on last year's stimulus, you didn't get that check in the mail, that you have a way out this year to recoup that money.
WELTMAN: Well, you may be entitled to the money. And you can get it by claiming the recovery rebate credit which is a new line on the tax return. So, you're not going to get a separate check, you're going to just increase your refund or reduce the taxes that you owe. And this could apply, for example, if you had a baby during 2008, so you didn't get credit for that.
WILLIS: Oh, a little extra dough, I love that. OK, let's talk about first-time home buyers, because there's a very interesting tax credit out there for home buyers. We should be clear here, tax credits, this is different than a deduction, a credit actually lowers your tax due, dollar for dollar.
WELTMAN: That's right. WILLIS: So, let's talk about that first-time home buyer out there who may be thinking, boy, now is the time to get in.
WELTMAN: Well, if you bought a home after April 8, 2008, you may be entitled to a tax credit of up to $7,500. But, this is kind of a unique credit, because it really is only an interest free loan. You get the money on your 2008 return, but then you have to start repaying it in equal amounts over 15 years, in most cases, starting in 2010.
WILLIS: All right, and Ways and Means Committee and Congress is actually debating right now whether they should remove that provision, allow you to have that tax credit and never have to pay it back. So, that could be a possibility that would be good news.
All right, let's talk about foreclosures, three million people last year in foreclosure. Is there any help out there for people who may go into foreclosure this year?
WELTMAN: Well, most people don't understand that when you have debt forgiven, it's usually taxable income to you, but under a special provision, if your home was foreclosed or you did a mortgage workout that resulted in a forgiveness of debt, you don't have to report that income. Up to, there's a $2 million cap.
WILLIS: One of the favorite programs out there, I know for viewers, the Home Energy tax credit went away, but it seems to be coming back. What's going on there?
WELTMAN: Well, it's really kind of confusing, the credits expired at the end of 2007, for 2008, if you put in solar panels or fuel cells, you can get a credit for that. But, if you did things like adding insulation, storm windows and doors, that credit doesn't apply for 2008, but it does come back in 2009. So, if you want to do the work now, you'll get the benefit when you file next year's return.
WILLIS: Well, that's good news and I think it will make a big difference to folks out there.
Now, we had some news, the other week, about a kinder, gentler IRS. They're going to give us a little break, here, they say. Doesn't mean you don't have to file your taxes, but they're going to go a little easier. What kinds of benefits are out there for people who might be having a hard time?
WELTMAN: Well, some people, for example, are paying their taxes on an installment agreement and maybe they're struggling to make those payments and the IRS says they'll be a little more flexible. The point is, if you're having any problems, the IRS is not going to contact you, you call them and make arrangements and they will be a little more flexible.
WILLIS: All right, it's always that you have take it on yourself and actually contact someone on your own. Barbara Weltman, thanks so much for helping us out today.
WELTMAN: Pleasure. WILLIS: As always, we thank you for spending part of your Saturday with us. YOUR BOTTOM LINE will be on next week, right here on CNN. You can also catch us on "HLN" every Saturday and Sunday at 3:30 p.m. Eastern Time.
And you can hear much more about the impact of this week's news on your money, on "YOUR MONEY" with Christine Romans and Ali Velshi, Saturdays at 1:00 p.m. Eastern and Sundays at 3:00, right here on CNN.
Don't go anywhere, your top stories are next in the CNN "NEWSROOM." Have a great weekend.