Washington Update

Shelley Yates, Communications Senior Advisor
November 19, 2018

Jeff Bush of The Washington Update, the industry thought leader guiding domestic clients through the complex and ever-changing political and tax environment, recently spoke at the 1st Global National Conference about what the midterm elections mean for investors and their financial advisors.

Because the Democrats took control of the House, Bush says not to expect new fiscal stimulus – neither spending cuts nor tax reform – or the 10 percent middle class tax cut. Likewise, with increases in defense spending or border wall funding unlikely with a Democratic-controlled House, the growing deficit may be at least somewhat controlled in time for the Dec. 7 budget deadline.

Also, Chinese import tariffs could mean higher prices on U.S. consumers. Citing the example of metal tariffs costing Ford $1 billion in profits so far, Bush projected that the proposed increase in Chinese tariffs from 10 percent to 25 percent in January would reduce 2019 economic growth by 0.75 to 1.1 basis points.

While both parties agree on the need for increased infrastructure spending, they differ on how to fund the project. The President’s plan is to incent local and state governments to raise funds to access matching federal funds, while the Democrats plan would be to increase the deficit. Bush pointed out that either way, construction, material stocks, telecommunications and technology industries would benefit.  

Maxine Waters, the new chair of Financial Services Committee, seeks to impose bank regulation, reverse Dodd-Frank rollbacks and vigorously pursue “bad actors.” As the SEC is an independent agency, legislative changes are unlikely. However, they could be subject to extensive hearings, which Bush says creates headline risk for financial service companies.

Bush warned, Tax volatility is the new risk to retirement that no one’s talking about.” While fiscal stimulus, tax reform and reduced regulation should continue to be favorable for the economy and market, things could change as soon as the election cycle in 2020. Bush argues the advisor role has never been more vital, especially in light of what he called tax volatility, or the risk to one’s investment income based on changes to the tax law. To mitigate tax volatility, he recommends a three-bucket approach of taxable, tax-free and tax-deferred investments to diversify sources of income generation.

Stay tuned to 1stGlobal.com/blog as we share more exclusive insights like this from our National Conference 2018 speakers in the coming weeks.

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