As the calendar pages fall away and we ease into a new year filled with new promises and possibilities, it’s fitting to look back at what was and what could have been in the days and months gone by.
In 2013, most of the country was still working to get back on track following the worst economic downturn since the Great Depression. Meanwhile, elected officials took to Washington, amid shutdowns and stalemates, to create the legislation that would ultimately determine how Middle America would regain its footing.
Here, we look at the three most significant policy changes impacting the everyday American.
The Affordable Care Act
Also dubbed Obamacare (affectionately or not, depending on who you ask), President Obama’s Affordable Care Act seemed simple enough in its intent—to secure medical coverage for all. But that’s probably where the simplicity ends. The Act has been mired in controversy and delays since its inception, with no end in sight. But regardless of whether you vote red or blue, the Affordable Care Act will impact your pocketbook, especially if you’re a high-income earner.
“Effective January 2013, there is an additional 3.8 percent Medicare surtax on net investment income. This is in addition to the 0.9 percent increase in the employee portion of Medicare taxes, and both of these are to help pay for Affordable Care Act,” explains Vijay Khetarpal, president and CEO of Integrity Financial Group in Vienna, Virginia.
“This 3.8 percent tax is calculated on the lesser of (a) net investment income or (b) excess of Modified Adjusted Gross Income, which is over the thresholds of $200,000 for individuals; $125,000 per person for those married filing separately; $250K for married couples filing jointly and $11,950 for trusts and estates,” explains Khetarpal. “A taxpayer must have both an excess MAGI and net investment income for the surtax to apply.”
There’s also the potential for additional costs to business owners, as well as fines for individuals who fail to get coverage under the individual mandate. It may all be worth it, though, for folks who can finally get coverage with pre-existing conditions—a point which forms the foundational argument for many of those in favor of the law.
The Qualified Mortgage Rule
Following the huge mortgage crisis that directly led to the 2008 financial meltdown, experts have been strategizing ways to rebuild the industry without causing a repeat debacle. The result? The Consumer Financial Protection Bureau’s Qualified Mortgage Rule (QM). Put simply, the law is meant to require lenders to consider a consumer’s ability to repay the loan before credit is extended.
But some feel that the stiff regulations will have a negative impact on the working class. For example, banks will be prohibited from approving mortgages for anyone whose debt-to-income ratio is higher than 43 percent.
“While the QM standards are extremely important for curbing risky lending, there will inevitably be hard-working, responsible borrowers who don’t quite fit the parameters in these rules,” says Aysha Pamukcu, Economic Equity Policy Counsel at The Greenlining Institute. “We want to see enough flexibility that lenders can look at borrowers as individuals, rather than a mortgage landscape where QM is being used as a substitute for quality underwriting and innovative products. We believe this can be done without a return to the wild-west atmosphere of the bubble.”
Though finalized in 2013, the policy doesn’t go into effect until January 10, 2014.
To some financial experts, the continuation of quantitative easing by the Federal Reserve is likely the policy issue that has the most widespread effects on every American citizen. So what is it exactly? According to Investopedia, quantitative easing is “an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.”
Quantitative easing is a boon to potential borrowers, because interest rates are kept artificially low, which aides the housing recovery. “It also encouraged Americans to invest in the stock market, as the low interest rates mean low yields in the bond markets,” says Elle Kaplan, CEO and founding partner of Lexion Capital Management.
But not everyone is happy with the continuation of the policy, including Scott Shellady, the CEO of Bradford Capital Management and SVP Global Macro Group at the Trean Group Chicago.
“This cash is poured into investment banks to keep them healthy and to have them lend to the general public,” he explains. “However, because unemployment is at 7.2 percent, our economy is too weak for banks to gamble and put the money out to loan. Interest rates are kept lower longer, giving the lenders no incentive to risk a loan and have a customer default. The banks re-lend the money back to the government for a paltry interest rate, but it is safe and secure.
“We are biding our time in the hopes we see new growth in the economy,” adds Shellady. “The very fact that we are continuing this policy means we can’t see any growth in the near future. Sad, scary and true.”