We believe a Clinton victory would mean more of the same policies and regulations that have existed under President Obama and the market seems comfortable with that. It appears that a Trump victory would raise the odds of a more aggressive fiscal policy, which Trump outlined in a recent speech at the Economic Club of New York. Trump claimed that his program of tax cuts and expanded spending, along with trade and regulatory changes, would generate real annual growth of 3.5% but would be “deficit-neutral” by reducing each dollar of nondefense and non-entitlement federal spending. In our view, the market seems to be a little anxious over Trump’s policy initiatives given the recent skittish trading.
In our opinion the big economic issues of this election are the Federal Reserve, trade, tax policy, and regulation.
Under a Clinton presidency there will likely be very little change at the Federal Reserve. The Fed would likely remain more dovish than the alternative, and longtime Clinton friend and ally Lawrence Summers would likely be in the running for the position of Chairman should Yellen decide to retire. Under a Trump administration, we believe the Fed would likely take a more hawkish tone and could be a little destabilizing with the Fed audit crowd gaining support.
Clinton comes off as an internationalist and Trump as a protectionist. However, in reality they are both closer to the middle of the spectrum. The Trans-Pacific Partnership (TPP) is a hot button with Clinton who is now vowing to kill the trade deal she helped push as President Obama’s top diplomat. If it passes in a lame-duck session, Clinton would probably not try to block it, contrary to what she said. Trump on the other hand has been in opposition to TPP, but when push comes to shove, we believe he will not want to get into a trade war with China and it is very unlikely that Chinese tariffs would be meaningfully altered.
The tax policies proposed by the two candidates are quite different, but also too lengthy and complicated, as is the current tax code, to get into here. In short, tax policy needs to stimulate growth as growth drives revenues. It is the difference between one candidate promoting lower marginal tax rates to drive revenues through economic growth and the other candidate driving revenues through taxation.
As an example, Trump would use an easier, less punitive tax code to help stimulate economic growth. Trump has proposed fewer tax brackets and lower rates for most individuals, lower capital gains and dividend taxes, and lowering the corporate tax rate from 35% to 15%. Clinton’s tax plan is pretty much a continuation of President Obama’s plan. She proposes a small increase in taxes that would be borne almost entirely by the wealthy. She has called for higher capital gains taxes to discourage short-term investing and would install a sliding scale of rates, with shorter-term investments taxed at higher rates than at present and no change to the top rate.
Regulation can have a real impact on economic growth and it can happen much quicker through executive action than going through the normal legislative processes. Trump has called for deregulation to get the Federal government out of the free market and said that government regulations should be pared back to ensure their benefits outweigh their costs and that they don’t eliminate U.S. jobs. Trump said he wants to repeal the Affordable Care Act and called government regulation a “stealth tax.” Clinton supports tightening Wall Street regulations and would continue many of President Obama’s regulatory policies. In October 2015, Clinton wrote an op-ed1 for Bloomberg detailing her proposals for Wall Street reform. She recommended protecting the Dodd-Frank Act, eliminating the carried interest tax loophole, imposing a “risk fee” on banks with more than $50 billion in assets and enacting a “high-frequency trading” tax.
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