A Political and Market Rally at the Close (Nov. 7)

Mike and Co.,
Greeting from North Carolina, where HRC will take the stage within minutes at the campus of NC State in Raleigh, the last rally of the campaign, to make the closing argument in her bid for the presidency.
With less than 24 hours before the last polls close, we take a moment to review some of the policy areas covered here over the course of the nasty, brutish, and long campaign where common ground was found as well as others where a mandate is in the balance should the Secretary be elected President tomorrow.
Today, for the first time in nine trading sessions — since right before the FBI Director announced the Bureau had to review the 650,000 new emails discovered — the markets saw a massive gain of two percent, following his announcement yesterday that the emails merit no legal reprisal or prosecution.  Call it the Comey correction.
In between the two announcements — when Trump called the kerfuffle “bigger than Watergate” — were nine days that may cost Democrats seats in Congress.  But yesterday’s announcement may have  halted any Trump momentum in its tracks.
Tax Policy

Here is where the candidates ended up on the most prominent tax policy questions of the campaign:
  • Personal Income Taxes | HRC proposes adding a 4 percent surtax for those earning more than $5 million. Trump has proposed reorganizing the current tax brackets into three tax brackets, with rates at 12, 25 and 33 percent
  • Estate Taxes | HRC has proposed increasing the top estate tax rate to 45 percent and lowering the exclusion valuation to $3.5 million. Trump has proposed repealing the estate tax
  • Corporate Taxes | Trump has proposed lowering the top corporate rate to 15 percent, while HRC has said she would like to increase taxes on corporations, without outlining a specific target rate
Perhaps the most intriguing area where common ground was forged this year was on the subject of the earned interest tax credit, now considered bedrock policy.
•  Debt / Deficit 
The national debt was a muted issue in this election cycle.  Voters did not ask and candidates did not answer the question of what if anything to do about the national debt, $18 trillion and growing.  HRC says investments in the middle class will boost productivity while Trump says tax cuts and deregulation will permit innovation and risk.  Most economists agree that sustained periods of growth at Chinese or Trumpian rates are not attainable, sustainable, or, frankly, relevant or worth the price in debt.  It drew a yawn this year.
HRC’s plan will likely keep the national debt at current levels.  Trump’s tax cuts will add trillions (three or ten trillion dollars) to a growing debt burden.
•  FY17 Budget Negotiations
As October recess neared and legislators were eager to adjourn and get on the trail, Congress passed a continuing resolution that expires December 9.   It included key compromises:
  • Republicans relented and appropriated $170 million for Flint water crisis relief
  • Louisiana and other states were given $500 million in flood relief, a key Republican priority
  • $1.1 billion in Zika relief funding was provided to Puerto Rico, after Democrats forced Republicans to remove partisan rider language that would have stopped funding for Planned Parenthood
  • The SEC will continue to not require companies to disclose their political donations, a Republican victory
Only one of the twelve appropriation bills  passed this year.  GOP House leadership hopes to use “minbuses” to finish the FY2016 budget during the lame duck session, only 12 legislative days long.
Passing spending bills and restoring regiment fiscal order was a priority for Speaker Ryan this year, but it does not seem he will reach his goal.  His back up plan is to finish defense and national security related appropriation bills, and pass a CR to resolve all other federal spending. Democrats have said such a strategy is unacceptable, and that they would prefer one large omnibus.
After Congress passed a six-year infrastructure bill (with three years of appropriated funding) in 2015, both presidential candidates promised to continue to invest in infrastructure upgrades in 2016.  It’s unclear whether the two candidates propose their plans in addition to, or as modifications to, the legislation passed in 2015. For example, HRC has proposed a $275 billion investment infrastructure, which includes $25 billion to set up a national infrastructure bank, $20 million to reauthorize the BAB program, and $230 billion to invest in tangible projects.
Neither candidate has specified how to pay for such an investment.   Congress is currently debating whether or not to use a tax holiday to pay for infrastructure in FYs 2019-2021 or to include funding in the normal appropriation process.
The Fed
At the beginning of the campaign, it was unclear when or how the Fed would raise interest rates above historically low levels. Part of the answer depended on how well, and quickly, the economy would continue to recover in the last two years of the Obama administration. Now, Janet Yellen is more than hinting that rates will rise in December, but that decision could depend on how markets respond to the outcome of the election.
Trump harshly criticized Yellen for keeping interest rates low to hide a “fake” economic recovery.  HRC, appropriately, has not commented on or sought to influence the monetary policy of the Fed, a non-partisan, non-political institution that may never get credit for risking its independence by stepping in where a gridlocked Congress could not to save the American, and maybe the global, economy.

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