Quick Glance at Obama's Budget Plan

The Good:

• Initiate a Cap-and-Trade system where the government will sell a certain number of "carbon credits" to companies, and these companies can then proceed to buy and sell the credits on an open market as needed. "Clean" companies will likely have excess credits that they can turn around and sell to the more "polluted" companies, rewarding the clean and penalizing the dirty. If all goes according to plan, Cap-and-Trade has the potential to create jobs, lower emissions and put an annual $80 billion in the government's pocket. I've always been fascinated with this system and I look forward to watching it progress.

Through his stimulus, and now his most recent budget plan, Obama is planning to throw a lot of money at alternative energy. Alternative energy ETFs have gotten battered this past year, but for good reason. Many of them consist of small, debt-laden firms in need of constant financing. In order to negate market timing, I am thinking about staggering into an alternative energy ETF every six months until I have built up a small position that I am comfortable with. I am choosing an ETF because when dealing with small-cap, highly leveraged, growth companies, it pays to be diversified. The fund I am currently looking at is the PowerShares Cleantech (PZD). Please drop a comment if you know of an "alternative" way to capture some of this inevitable growth!

The Bad:

• The top two marginal tax brackets will pay an additional 5% on capital gains. I know taxation is a controversial subject, but taxing capital gains is a part of our tax structure that really irks me. The American public works hard, pays their taxes and then gets penalized for assuming all of the risk associated with investing in the companies of tomorrow. I'm not saying that the capital gains tax should be abolished, but I certainly don't think it needs to be raised, especially over the next couple of years when we'll already be struggling to attract investment.

The Ugly:

• Capital gains, or "carry interest", on private equity, hedge fund and venture capital returns will be taxed as ordinary income instead of capital gains (a significant increase). It's ironic because the Treasury wants private investors to get involved in the purchasing of these toxic assets, yet instead of providing some sort of incentive, they proceed to increase taxes, making it even more difficult for these funds to find a reason to put their capital at risk. The U.S. is no longer a country centered around manufacturing. We rely on innovation and the free flow of capital to maintain our domestic growth. If we choose to hike taxes on the providers of this capital, we must be prepared for the economic consequences.

The Bottom Line:
There's much more to this plan than I have summarized here, but these are a few of the points that I found particularly important for the average investor. Even though Obama's proposed budget is quite ambitious, our current deficit is growing exponentially, requiring a ruthless approach. I like his attitude...I just hope this plan doesn't come riddled with too many negative side-effects (like some of those shady drug commercials).