In one of the strangest U.S. presidential elections in history, we have the choice between two of the most polarizing candidates we’ve seen in our lifetime. Since this election cycle has been particularly bereft of policy discussions, I will discuss the basic differences between the two candidates in the areas that I believe may impact you most from a financial standpoint.

Individual Income and Estate Taxes:

Our clients tend to utilize government services less than the average voter; however, they also tend to pay much more in income and estate taxes. There is a large difference between what the two candidates have proposed. Here is a summary of the major differences:

Personal Income Taxes

Clinton: Focused tax increases on the highest income taxpayers

  • More complication, but the bottom 95% of taxpayers will be unaffected

  • 4% surtax on incomes over $5 million

  • If your Adjusted Gross Income >$1 million, minimum 30% tax

  • Caps on itemized deductions for high-income taxpayers

  • Limits on contributions to retirement plans at certain income levels

  • Sliding scale of capital gain tax rates for high-income taxpayers depending on how long an investment is held. Starts at 43.4% and decreases to 23.8% for a 6 year holding period

  • Estates greater than $3.5 million for individual filings ($7 million for married couples) would be taxed at 45% vs. the current levels of $5.54 million (individual) and $11.08 million (joint) taxed at 40%

Trump: Short on details, but a slight simplification and a big change for business owners.

  • 3 tax brackets instead of the current 7 ranging from 12-33% vs. the current 10-39.6%

  • Business owners would pay a flat rate of 15% vs. up to 39.6% currently

  • Deduction of child care expenses

  • Full repeal of the estate tax

Corporate Income Taxes

The U.S. has among the highest corporate taxes in the world and this has spawned a cottage industry of tax avoidance among U.S.-based corporations.

Clinton: Slight focus on worker re-training

  • Corporate tax rates would remain the same at 35%

  • $1,500 worker/apprenticeship tax credit for businesses to hire and train employees

  • 15% tax credit for companies that share profits with employees

  • Regulations to stop U.S. companies from shifting profits overseas to avoid U.S. taxes

Trump: Large reduction in corporate income taxes

  • Corporate tax rate of 15% vs. 35% currently

  • End tax deferral of overseas profit

  • Cap interest expense deductions to discourage excessive borrowing

  • 10% repatriation tax for overseas earnings

Health Care

Clinton: Expand the Affordable Care Act (Obamacare)

  • Public health insurance created by the Federal Government

  • Loosen restrictions on importation of prescription drugs from abroad

  • Increase funding for the FDA to speed generic drugs to market

  • Cap out of pocket costs for prescription drugs to $250/month

Trump: Repeal the Affordable Care Act (Obamacare)

  • Eliminate the mandate that everyone has health insurance

  • Shift the responsibility to the states to develop their own health care plans

  • Loosen restrictions on importation of prescription drugs from abroad

  • Allow insurance companies to sell health insurance across state lines

Summary

During an election, it is easy for the candidates to put forth their ideas that appeal to potential voters. In the end, many of the grand ideas fail to be put into action because of nagging issues like “who is going to pay for this?”

Financial Market Reaction

If Hillary Clinton wins the election, I think the market reaction will be benign since she is a known quantity and at the time of this writing is the heavy favorite to win. If Donald Trump is elected, I would expect the stock market to decline 5-10%. Even though Trump appears to be a more business-friendly candidate, financial markets are allergic to uncertainty and Trump is a wild card on a number of levels.

We Will Continue to Focus on The Things Under Our Control

2016 has turned out to be a pretty good year for investment performance and while we have a number of concerns, our view has been that as long as interest rates remain very low, we should avoid a large correction in most asset classes. Last year, we recommended overweighting non-U.S. Stocks and we have experienced particularly strong performance in this category in 2016. We are now over seven years into the stock market recovery and valuations of U.S. stocks (represented by the S&P 500) are the second highest in history, so we would not be surprised to have a correction in the next six months. We do not think, however, that a correction is likely to end up as another financial crisis. Corrections of 10-15% are a normal part of investing and attempting to predict with accuracy when they are going to occur in advance is something we gave up on a long time ago.

We encourage you to contact a Client Advisor with any questions.


IMPORTANT DISCLOSURES
This article contains general information, opinions and market commentary and is only a summary of certain issues and events that we believe might be of interest generally. Nothing in this article is intended to provide, and you should not rely on it for, accounting, legal, tax or investment advice or recommendations. We are not making any specific recommendations regarding any security or investment or wealth management strategy, and you should not make any decisions based on the information in this article. While we believe the information in this article is reliable, we do not make any representation or warranty concerning the accuracy of any data in this article and we disclaim any liability arising out of your use of, or reliance on, such information. The information and opinions in this article are subject to change without notice, and we do not undertake any responsibility to update any information herein or advise you of any change in such information in the future. This article speaks only as of the date indicated. Past performance of any investment or wealth management strategy or program is not a reliable indicator of future results. Portions of this article constitute “forward thinking statements” and are subject to a number of significant to a number of significant risks and uncertainties. Any such forward-looking statements should not be relied upon as predictions of future events or results.