After an Election Night result that surprised a lot of Americans, we’re still trying to come to grips with the implications. A lot of financial analysts thought that a Trump victory would send the markets into a long, painful tailspin — and the stock markets initially seemed to bear that out. But by Wednesday morning in New York, the US stock indexes had recovered, and have since pushed forward to new all-time highs. On the other hand, global bond markets have reacted less favorably: interest rates have risen substantially, driving down bond prices.
While we can’t be certain whether these immediate financial-market reactions will continue for the length of a Trump presidency, we think that some of the policies proposed by the incoming Trump administration give even more reasons than ever to make sure that your investments are aligned with your values.
Here, then, is the first of a series of five posts on the possible fallout from this election, and what we can do about it.
1: Tax Law Changes
We don’t yet know the extent of the changes to the Federal tax code that the Republican Congress could push through, with the support of a Trump administration. The various tax plans that Trump released over the last year or so are not easy to analyze, but the latest of them promises to reduce the complexity of the current bracket system, to lower the rates paid at each bracket, and to eliminate the estate tax altogether.
While it appears that the “average American taxpayer” will see their tax bill reduced under Trump’s plan, it is almost certain that “about 47% of the benefits will go to the richest 1%”. Many middle-class taxpayers would end up paying significantly more than they have in recent years. And it appears that if Trump’s tax plans were enacted, and allowed to run for more than a couple of years, would essentially require enormous spending cuts — such that “if Social Security, Medicare, and defense spending were unchanged, all other programs would need to be eliminated entirely to achieve budget balance”.
As investors, there’s not much that we can do about the proposed legislative changes to the tax code. But as citizens, we have a lot of options, including direct political advocacy. Probably our best bet is to call and write to our Senators and Congresspersons, especially if they happen to be on the two committees that work on all tax law changes: the House Ways and Means Committee and the Senate Committee on Finance. And, of course, we can vote in the mid-term elections in 2018, to try and change the makeup of the Congress!
Next — Part 2: International Trade
