Last week, Waldron Private Wealth hosted a professional education event at the Duquesne Club focused on the 2016 Presidential, Senate and House elections, and the potential tax and estate planning impact they may have.
After months of never ending television, radio and online advertising, Election Day is almost here. Not only has this election season been contentious and unusual (this is the first time in history both presidential candidates are viewed as unfavorable by over 50% of registered voters), but control of the House and Senate hangs in the balance.
While the House is likely to stay Republican, as Democrats need a net gain of 30 seats to take control, it is far from certain. With most representatives considered either “dark blue” or “dark red,” it will be difficult for the Democratic Party to come out on top. Conversely, Republicans are worried about a wave election, where Democrats potentially ride a 10 point advantage in the presidential election, straight down the ticket.
The Senate is up next. There is only one state held by the Democrats that is in a competitive race, unlike the 10 Republican states which are currently in play, including both PA and Florida. One potential outcome is split ticket voting, where a person’s presidential vote is for one party, and their Senate vote is for the other. According to a recent poll, 32% of Hillary supporters have said they plan to split their votes, while 53% of Trump supporters will vote a straight Republican ballot. While Democrats are spending comparatively more in these battleground states than the Republicans, it is expected that many of these contests will be extremely close.
Now for the final round: Clinton vs. Trump. When Obama was elected to office, he was one of the most popular presidents elected to date. However, in this election, people tend to be voting against someone, and not for someone. Both candidates are deemed untrustworthy, have demonstrated poor judgment, and have failed to inspire many in their party. Clinton, though, has the advantage currently, up 2% in the national rolling average, but the political volatility is palpable.
To win the presidency, a candidate will need 270 Electoral College votes. Since 1992, 18 states and the District of Columbia have voted Democrat (242 Electoral College votes) in each presidential election, while in contrast, only 13 states have voted Republican (102 Electoral College votes) in each contest. In order to get to 270, Trump will need to win all of the Battleground states, while Clinton, who only needs an additional 28 Electoral College votes to get to 270, could win with just Florida.
If Clinton wins, she will need to negotiate with the House, empower Democrats colleagues, and make key cabinet appointments, all while being pushed further to the “left” than she has been historically by progressives like Bernie Sanders and Elizabeth Warren. If Trump wins, he will also have a difficult time with the House, exacerbated by his strained relationship with Paul Ryan.
The issue likely to get the most attention over the next four years, whether it’s Clinton or Trump in the White House, is tax reform. And while tax reform is a hot topic, given the current political gridlock, it will be difficult for the next President to enact comprehensive reform. There is some agreement on the corporate side of the tax code, and some change may be possible there. Though, if Clinton is elected, her proposal of capping the value of specified deductions and exclusions to 28% for individuals could definitely gain momentum. This cap would affect taxpayers in the 33% and higher tax brackets by being applied to, for example, itemized deductions (except for charitable contributions), tax exempt state and local bond interest, and deductible contributions to tax-preferred retirement accounts. While it is almost certain that the next president will experience pressure to increase the capital gains tax, it seems that the estate tax and current exemptions will likely remain as they are, while the outcome for step up basis is uncertain.
In all, this has been an exciting election year, and one thing is for sure, whoever wins the election on November 8th will have a long 4 years ahead of them.
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