The recent cooler temperatures in Northeastern Ohio seem to have flipped the switch as the unofficial ramp-up of an already heated election season. As we all know, this culminates on November 8th with the election a new president along with many other congressional representatives.
So as financial planners, why would we articulate our observations about this divisive election? Are we really going to get political and make an argument for either Trump or Clinton? Of course not. We are old enough to know it is usually pointless to argue politics with someone who already has their mind made up. Even if you think you have an open-and-shut case for a particular position with facts and figures to back you up, we’ve learned that it just doesn’t matter. If someone is entrenched in a particular mindset, they just can’t be convinced otherwise.
That said, we have had enough recent conversations with nervous clients (on both sides of the political spectrum) who are convinced “If Trump/Clinton get elected, we’re in big trouble!!!” While that may be true, we can all at least agree that one of these two candidates is almost guaranteed to take the oath of office in January. So we’re stuck with one of them.
For this reason, it’s important to be cognizant of the each candidate’s positions on taxes, trade, fiscal policy along with many other issues. So we do need to educate ourselves on Hillary Clinton’s estate planning tax proposals and capital gains tax changes. And we do need to know about Donald Trump’s compressed tax brackets and repatriation tax rates.
However, we think individual investors have a tendency to put too much focus on the outcome of the presidential election.
First, in our view most of these proposals serve mostly as political grandstanding. We think most “new policy” speeches are nothing but grandiose ideas that make for nice sound-bites for the mass media, newspaper headlines, Facebook posts or Twitter hashtags. They are almost always short on detail and there’s never really any deep discussion on how these plans would be implemented or if they are even feasible.
Which brings us to our second point- most of these proposals will never be implemented because they will never see the light of day if they aren’t passed first by Congress. Now we don’t mean to bring back nightmares from your high school civics class but our republic has a system of checks and balances. Laws, and more importantly, spending cannot be authorized without first passing through the House and Senate.
So what we are watching most intently is the interaction between the presidential outcome and congressional races. As most know, currently both the House and Senate are held with slight majorities by the Republicans controlled as a result of the huge gains from the 2014 mid-term elections.
So there are four most likely outcomes: Trump elected with a Republican congress, Trump Elected with a Democrat congress, Clinton elected with a Democrat congress and Clinton elected with a Republican congress.
In our view, any opposition of presidential party & congressional majority party (i.e. Clinton with a Republican congress or vice versa) would mean most of these presidential proposals will have little chance of full implementation.
However, if we see the same party come out victorious in both the oval office and on capitol hill, we need to watch very closely how proposed new policies would impact our investments, taxes, insurance planning and estate plans. So what half of the country may think are crazy ideas may very well become law and could have very real impacts on economic growth, stock and bond market returns and of course, how much we pay Uncle Sam on tax day every year. But even then, these changes won’t happen overnight, so kneejerk reactions to asset allocations or tax strategies usually does more harm than good in the long run.