America took a deep breath this week. Some exhaled in relief. Others may still be holding their breath in disbelief. It doesn’t matter where you fall on the political spectrum; one positive from this year’s election is that we all knew the outcome in short order.
Now that we know the results of Trump vs. Harris, “What happens next?”
At the time of this writing, it is confirmed that Republicans will have control over at least 2 branches of government. The House of Representatives is still undecided; however, it does appear to be trending towards Republicans maintaining control of the House. We should know the final vote soon enough.
Based on the premise that we will have a Republican-led government for the next 2 years, here are my thoughts on a few topics. I will attempt to provide an objective, economic-focused assessment of these topics. I understand that each of these areas are complex, and there are social & ideological considerations.
Of course, these are simply my educated guesses based on Trump’s disclosed agenda and previous governing style. The legislative and policy-making process still has to play out in Congress. We will have to wait and see how things play out after Trump and his team are back in the White House.
US Energy
This topic is the most straightforward. Trump campaigned on an aggressive, pro-domestic energy policy. I expect Trump to lift every executive order from the Biden Administration that he feels is punitive or burdensome for domestic energy producers.
For example, in January of this year, the Biden Administration announced that they would pause permitting new LNG (Liquid Natural Gas) export terminals. The US is currently the largest exporter of LNG in the world, and this policy decision directly impacted further expansion for the industry. When asked about the pause, Mike Wirth, the CEO of Chevron stated, “When it comes to advancing economic prosperity, energy security, and environmental protection, an LNG permitting pause fails on all three.”
In addition to repealing executive orders, I also believe that Trump will take efforts to renew and add leases for oil & gas exploration on Federal lands. One area of specific interest will be ANWR in Alaska. Trump has signaled that he believes the area holds untapped reserves of American energy, and he openly criticized the Biden Administration for undoing his work in the area while in office.
We should expect to see a significant reduction and potential elimination of green energy subsidies. Considering that one of Trump’s campaign surrogates was Elon Musk, I’m curious to see what his team proposes for EVs or batteries. Personally, I’d like to see an equal playing field and allow markets to determine the future of electric vehicles. If these vehicles have adequate consumer demand without government aid, they will carve our their own market share. Time will tell.
I’m skeptical that the Trump administration will accommodate wind and solar in the same manner as the Biden Administration. While these two areas are popular with green energy advocates, they come with significant tradeoffs. There are also questions about efficiency and effectiveness. In his Joe Rogan interview, Trump and Rogan had a very pointed conversation about wind farms; and I think it’s safe to say Trump is not a fan.
On a different note, Trump did seem to be open to exploring nuclear energy. This is an area that I believe deserves more effort because the clean energy produced by nuclear power is unmatched. The keys to any path forward with nuclear energy will be safety and reducing the costs and regulatory burden of building nuclear facilities.
In sum, I believe Trump will work towards growing and expanding domestic energy production. Since the cost of energy is a direct input into the formulas for inflation and consumer prices, it shouldn’t surprise anyone that this will be a top priority for his 2nd term in office. A noted economist and financial thought leader, David Bahnsen, wrote, “...if Trump were President, I think national energy policy would be better for the consumer, create more jobs, and facilitate more export opportunity, especially with natural gas.” Let’s hope he’s correct.
Tax Policy
Trump will 100% seek to extend his Tax Cuts and Jobs Act. With a Republican Congress, I expect him to go after new territory by attempting to lower the corporate tax rate from 21% to 15%. Call me skeptical, but I think this proposal has a slim chance of making it.
One reason that Trump may have fixated on the 15% number is that there is currently an initiative by the Organisation for Economic Co-operation and Development to establish a global minimum tax on corporations. The minimum rate? Well, it’s 15 percent.
Trump loves to make deals, so I anticipate some heavy negotiating on the tax front. Here are some specific areas that I would expect to see coming up in those negotiations:
Raising the limits on the SALT cap; This provision limited the amount of deductions people could take for their state and local taxes. It was targeted at high income tax blue states, but the residual effect was a tax increase on high earners in red states. It was a mixed bag. With the recent inflation, more and more people are getting hit with the limits, so I think it’s ripe for a revision.
Trump campaigned on “No Taxes on Tips.” I think he makes it happen. My one concern here is that I’m unclear on potential 2nd order effects.
Trump also campaigned on eliminating taxes on overtime. I’m unsure of how this may play out legislatively. I think it would be economically stimulative for many blue collar workers who rely on overtime to boost their take home pay.
“No Tax on Social Security” was a phrase that echoed across the airwaves when Trump announced this idea. I’m very skeptical this will take place in the manner that he initially proposed. Tax on SS Benefits is a sore spot with many benefit recipients because they paid into the system with dollars that were being taxed. Thus, receiving benefits that could also be taxed feels like double taxation. It’s a valid point.
I simply don’t know how this idea works from a policy perspective. However, I do have hope for social security beneficiaries. There is a way that Trump and his team could massively alter this system, and it would be tough for anyone in DC to argue against. Trump and his team could propose to raise the provisional income tax brackets that are used to determine how much of one’s SS income would be taxed.
These brackets were never indexed for inflation and were last updated during the Clinton administration! If Trump and his team could adjust these for inflation (and possibly index them as well), it would be one of the landmark tax victories for social security benefits in our lifetime. It would make SS income benefits not taxed for millions of Americans.
The economic theory behind lowering taxes is that it will stimulate growth, as companies will have more net income that can be used to give pay raises, hire new workers, or build new facilities. The downside (politically) is that corporate executives may take the newfound revenue, give themselves big raises, and/or perform more stock buybacks.
Stock buybacks are becoming a more prominent part of the investment universe, and I don’t believe they should be demonized. Shareholders should be rewarded for being owners of the business. However, I think the optics of buybacks on the coattails of tax cuts will not be great for Trump and his team.
I expect tax legislation to be proposed within Trump’s first 100 days in office.
Immigration
America is a land of immigrants. Immigration is a huge part of American history, and in my view, it will play a pivotal role in the long-term success of the American economy. However, it’s essential to define terms when talking about immigration.
Our immigration system requires significant reforms. These are reforms made to legal immigration. Republican leadership has repeatedly stated that blanket amnesty or expedited pathways to citizenship is a nonstarter.
On Day 1, I believe that President-elect Trump will reinstall his executive orders regarding the border that were in place when he left office. I would also expect to see House Republicans re-introduce their Secure The Border Act of 2023, which failed to gain traction in the Senate. This bill will likely include even more Republican priorities like funding for a border wall, enhanced resources for border patrol, and a framework for deportation.
According to a report by Steven A. Camarota, Director of Research at The Center for Immigration Studies, the lifetime “fiscal drain” for each illegal immigrant is projected to be $68,000. Some other statistics in his report:
Illegal immigrants make extensive use of welfare. Based on government data, we estimate that 59 percent of households headed by illegal immigrants use one or more major welfare programs, compared to 39 percent of households headed by the U.S.-born.
Prior research indicates that there were 5.8 million uninsured illegal immigrants in the country in 2019, accounting for a little over one-fifth of the total population without health insurance. The costs of providing care to them likely totals some $7 billion annually.
In addition to consuming welfare, illegal immigrants make significant use of public education. Based on average costs per student, the estimated 4 million children of illegal immigrants in public schools created $68.1 billion in costs in 2019. The vast majority of these children are U.S.-born.
Academics and researchers will likely disagree and dispute the numbers. I encourage you to read Camarota's testimony here. I believe that Republicans will prioritize the deportation of violent criminals and seek to find a way to minimize the government payouts to illegal immigrants.
It would be irresponsible to discuss immigration without acknowledging that there is undoubtedly a humanitarian side to this issue. I do believe that many immigrants come to the US seeking a better life for themselves and their families. I also believe that the data shows that most immigrants are indeed hard workers.
One significant challenge is that the majority of illegal immigrants are not considered high-skilled or highly educated workers. The argument for immigrant workers is that they add to the labor force and help with our aging demographics. The counterpoint is that immigrant labor competes with American workers in the same category, and they may keep a lid on wages for Americans.
From an economic standpoint, we cannot ignore the real fiscal impacts of unchecked immigration. According to USDebtClock.org, our current deficit in the US is sitting at $2.1 Trillion / annually. I’m a firm believer that the math of our debt and deficits will eventually be too burdensome to ignore.
Trump made illegal immigration a centerpiece of his campaign. I believe he’s going to move hard on this issue of illegal immigration. One point that is often overlooked is the benefits of legal immigration.
Legal immigration is a tremendous value add for our country. We need more (legal) immigrants, as our population ages. I sincerely hope that we can eliminate the hurdles and red tape for people who choose to come here legally. We need them.
The Other Stuff
I would be completely lying if I didn’t state that I’m intrigued, if not excited, about the idea of Elon Musk and his Department of Goverment Efficiency (DOGE). I referenced above that our government spending is out of control. We have to start eliminating government waste.
The Make America Healthy Again movement by RFK, Jr. should be something we all get behind. Chronic illness, obesity, and cancer run rampant within our culture. If you’ve ever been to Europe, you’ve likely marveled at the amount of food you ate and actually lost weight. Getting the junk ingredients out of our food should be a high priority.
I also will fully disclose that I’m 100% in favor of disallowing pharmaceutical companies to advertise on television. The United States and New Zealand are the only 2 countries in the world where the new XYZ drug can be advertised to consumers. Big Pharma is a huge business, so the lobbying efforts against this move will be huge, but I believe thiis a fight worth having.
Investing and Politics
The election is over. The politics, however, are just beginning. There will be more to say on each of these topics, but these are some initial thoughts in the wake a of very contentious and polarizing election season. Many people feel disillusioned about Trump winning. Had Harris carried the day, people on the other side of the aisle would feel the same.
It’s not uncommon for people to be led by their emotions to make rash financial decisions. This is rarely a good move, especially when it comes to investing. Take a look at the following:
Markets can react and move based on sentiment in the short-run. There are undoubtedly times when markets and market participants act irrationally. Good investors understand that markets have a long-term winning record; and they stand fast when things get dicey.
The best thing you can do for your financial future is to have a long-term financial plan that reflects your goals and values. Then– execute that plan with relentless discipline. Our team is ready to help you make it happen, so let’s get back to work.
Disclosures:
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