The Economic Election Starts To Take Shape

The 2016 U.S. presidential campaign has turned into a real horse race, and Americans will soon turn their attentions from beach vacations, baseball games and barbecues to vetting the two main presidential nominees.

Wall Street is watching closely, too, as the No.1 issue among both voters and industry professionals is the economy, and how each candidate would steer that economy.

That’s a big issue in an election years, where historical stock market returns hover around 2 percent when no incumbent is running for office, as opposed to 10 percent for non-presidential election years. Clearly, the nation will focus, as it usually does, on the pocketbook, during the heat of a presidential campaign.

We are assuming that Hillary Clinton will clinch the nomination. So we are focusing on her to face presumptive Republican nominee Donald Trump in this article.

Taxes

Clinton’s main plank in her taxation platform is to add a 4 percent surtax on annual incomes over $5 million for tax rates on ordinary income, according to the Tax Foundation. On capital gains, the Democratic nominee would add a 4 percent surtax on income over $5 million. Clinton will also hike tax rates rates on medium-term capital gains (i.e., investments held for less than six years) to between 24 percent and 39.6 percent.

As for Trump, the GOP nominee will create four new  tax brackets, with rates of 0, 10, 20 and 25 percent. The top rate applies to income over $150,000 for single filers and $300,000 for joint filers. As for capital gains, Trump is proposing to deep-sixing the net investment income surtax, the Tax Foundation reports.

On corporate taxes, Clinton has yet to produce a specific proposal, although most economists believe the status quo is OK with the Democratic Party, while Trump has proposed cutting the corporate tax rate to 15 percent, down from its current 20 percent.

On estate taxes, the two candidates really differ.

Clinton will hike the top estate tax rate to 45 percent, and will lower the estate tax exclusion to $3.5 million. Trump is undercutting that proposal, stating that he will eliminate the estate tax entirely.

Social Security

Clinton has also said she is against privatizing Social Security, a platform plank that is exactly opposite the position Trump is using on the stump.

Health Care

Consumers are routinely seeing double-digit insurance rate increases annually, along with sky-high deductibles. Trump has made repealing Obamacare a centerpiece of his entire campaign, in favor of a health plan built on “free market” principles.

In a March speech, the likely GOP nominee said he would reduce barriers to the interstate sale of health insurance, institute a full tax deduction for insurance premium payments for individuals, make Health Saving Accounts inheritable, require price transparency, block-grant Medicaid to the states, and allow for more overseas drug providers through lowered regulatory barriers.

Clinton remains a big supporter of Obamacare, and promises to keep it intact if she reaches the oval office. She also favors proposed allowing Americans to buy into Medicare before the age of 65, allowing, for example, Americans aged 50 or so to “buy in” to Medicare for a nominal payment.

Trade and Financial Reform

On trade and Wall Street reform, Trump is a strong advocate of renegotiating “unfair” international trade deals, like NAFTA and the Trans-Pacific Partnership – he’ll call for tariffs to steer overseas jobs back home to the U.S. He’s also touting looser restrictions for Wall Street traders and money managers.

Clinton is pro-international trade (her husband signed off on NAFTA as president in 1994), and has vowed to create a “level playing field” for U.S. financial consumers on Wall Street. She’s promised to increase the federal minimum wage and will call on Congress to mandate that investors hold on to stocks and bonds for a minimum time period, to curb Wall Street’s so-called “churn and burn” reputation, and to reduce “investment speculators.”

Advisors Back Trump Business Focus

Based on the state of the race to date, and after a look at their hot button economic proposals, financial advisors peer into the crystal ball and pick a winner come the first Tuesday of November.

“I see Hillary winning,” says Scott Cody, a financial planner and partner with Latitude Financial Group. “If Hillary wins, I don't see much change in the economy, nor in our industry. I see it as an extension of the Obama administration. So, more regulation will continue like Healthcare Reform Act as well as DOL fiduciary rules.”

The chief reason Cody sees Hillary winning is because Trump would need to take all the swing states in order to win.

“I don't like the odds of that happening,” he says, adding that he thinks Trump would boost the economy. “With Trump, I see a change in the economy by putting more money in consumers' pockets because of his tax plan. I also see U.S. corporations getting a significant tax break which has the potential to bring more overseas jobs back to the U.S. as well as corporate tax dollars sitting offshore back home because they are not paying one of the highest corporate tax rates in the world.”

“But in regards to our industry, I don't see Trump pushing for too much regulation, given his business background,” Cody adds. “I see him being fair in wanting to protect consumers, but not in a burdensome manner to the financial industry.”

Ross Patten, a financial advisor with Rice Cube LLC, says he expects Trump will prevail, as would the economy.

“A win for Trump is imminent, and will return the U.S. to the last decade of the last century,” Patten predicts, suggesting that Trump would return the U.S. to a Clinton era more than a Clinton would. “Ask anyone in the street if that’s what they want, that or austerity and see what you get from the man in the street.”

From Patten’s perspective, Trump’s economic message on free trade and on jobs will resonate with all-important middle-class swing state voters.

“Trump will rally a new generation of free wielding market economy thinkers to spawn a banquet of Made in the USA products that will centralize the economy,” he states. “Japan has succeeded, as China already has, in reducing its cost of living under these measures, restricting foreign ownership, limiting imports and forcing an internalization of public spending. Austerity is a word the rest of the world understand and doesn’t fear, with the exception of Greece.”

With about 150 days left until the Presidential election, voters and Wall Street insiders will have more time to vet both Donald Trump and Hillary Clinton. But there’s enough evidence already that the economic policies between the two candidates vary greatly, with a lot on the line heading into the next four years.

Brian O'Connell is a former Wall Street bond trader and author of the best-selling books, such as The 401k Millionaire. He's a regular contributor to major media business platforms. He resides in Doylestown, Pa. Brian may be reached at [email protected].

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