Dow Sinks Day After Election; Obama to Inherit Bad Economy

Stimulus Round Two

Many economists believe to that to boost the sagging economy, Congress will pass another economic stimulus package, perhaps even before the new president takes the oath of office in January. That is particularly true if Obama wins.

"I think this will be one of the most busy lame-duck sessions of Congress ever seen if Obama wins," said Brian Westbury, chief economist with First Trust Advisors.

Unlike the $168 billion stimulus bill approved last spring that provided direct rebates to taxpayers to stimulate spending, this stimulus bill is expected to address a variety of policy actions.

Those could include extending unemployment benefits and food stamps, funding state and local infrastructure projects as a means to create jobs, providing federal funds to state governments to cover rising Medicaid costs, offering mortgage relief for struggling homeowners, implementing tax cuts or rebate checks or even extending existing tax rates, and possibly providing money to help Americans pay for higher heating bills this winter.

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Who Will Be Good for Taxes?

Who will pay higher taxes and who will get a tax cut became a defining issue in this election, with "Joe the Plumber" becoming a symbol of American fears of "redistribution" of wealth through changes in tax policy.

Obama says he wants to preserve the Bush tax cuts for families earning less than $250,000 and wants to expand tax credits for low-income families as part of his Making Work Pay program.

For families making less than $250,000, Obama supports higher taxes. But he would eliminate income taxes on seniors making less than $50,000 and encourage job creation; he wants to eliminate capital gains tax on small businesses and startups.

Cars, Energy and More Jobs

The ailing auto industry will also be a challenge facing the new president. Thousands may face unemployment if General Motors, Ford or Chrysler is forced into bankruptcy. Obama says he supports some aid to carmakers, in addition to the $25 billion loan program approved by Congress in September.

Obama says he would create 2 million jobs by rebuilding the country's infrastructure and he hopes to create 5 million "green jobs" through investment in renewable energy and building out the broadband network to all corners of the country.

Market Reaction?

And how will the stock market react to Obama's election? Many have said an Obama victory is already "baked in the cake" on Wall Street. And while history shows that stocks tend to rally the day after a Republican victory and sell off on a Democratic victory, in the long term the outcome of presidential elections is not a reliable predictor of performance.

Like many American voters, traders on the floor of the New York Stock Exchange were ready for this long campaign to be over.

"I mean enough," said Jason Weisberg of Seaport Securities. "It seems like it's been going for the last four years."

Other Challenges

Kenneth S. Rogoff, an economics professor at Harvard University and a former economist at both the International Monetary Fund and the Federal Reserve, said earlier this week that the next U.S. president will grapple with a host of issues beyond the recession, such as a wave of retirements by the country's baby boomers that will put increased pressure on government services for seniors.

"Medicare and Social Security are just blowing up and calculations, which used to be long, dated problems, are starting to come to the fore," Rogoff said. The government's Social Security fund, in particular, will have no choice but to turn to deficit spending, he said.

The state of the environment, he said, will also have consequences for the economy in the coming four years. Rogoff said addressing environmental concerns may require new taxes or caps on pollution.

"To actually deal with it has profound economic implications -- that's why we avoided it," he said. "But we can't wait any longer."