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How the Candidates Divide on Financial, Regulatory Issues

As usual in a presidential election, the victor will exert tremendous influence over public policy relative to the financial services sector.
 
Candidates Hillary Clinton and Donald Trump will come at the industry with traditional liberal and conservative ideology, respectively. Or will they?
 
Like most everything else in this very unusual election, definitive ideology is at least a little unknown. After all, Trump surrogates surprised everyone by pushing to have support for reinstating the Glass-Steagall Act added to the GOP platform.
 
Named for a pair of Democrats and passed in 1933, the law created a wall between traditional banking and riskier investment banking practices. Glass-Steagall is generally viewed as a liberal regulatory bill, which made it a surprising addition to the GOP platform.
 
Congress gradually weakened the law and finally repealed it in 1999, opening the door for many insurance-banking combination businesses.
 
Likewise, Clinton’s deep ties to Wall Street have many in the financial services world wondering what to expect from the Democrats this time. After all, the party is still home to Sens. Bernie Sanders and Elizabeth Warren, both fierce Wall Street opponents.
 
Yes, it’s that kind of crazy and weird election year.
 
Americans chose Trump by a 51-44 margin when asked to name the better candidate to “handle the economy” in a June CNN/ORC poll.
 
But it gets more difficult to nail down Trump policies when the candidate’s positions often differ greatly from the GOP platform. On taxes and Glass-Steagall, for example, Trump is at great odds with the party.
 
With Republicans positioned strongly to control at least one branch of Congress, if not both, one assumes that final policies will be a mix of the party platform and Trump.
 
The candidates do have records — votes, speeches and public stances — from which we can get a sense of their thinking. 
 
Here is what we know about a few key issues of importance to the industry:
 

The Fiduciary Rule

 
Although the Department of Labor fiduciary rule has dominated the financial world’s news, it has barely registered a pulse in the campaign. The Trump camp is almost entirely focused on immigration, law and order, and foreign policy issues. Trump has not mentioned the fiduciary rule, but the safe assumption is that he would oppose it, said Craig Lemoine, American College associate professor of financial planning.
 
Clinton wrote a December New York Times column urging Democrats to stay strong on the fiduciary rule. Clinton vowed that, if elected, she will pick up the fiduciary fight from the Obama administration, and said she would go further to strengthen Dodd-Frank regulations.
 
The DOL published new fiduciary rules in April that cover advice provided regarding qualified retirement employer-sponsored plans and individual retirement accounts. New rules start to take effect in April 2017, with the final mandates being enforced starting in January 2018.
 
Three lawsuits are making their way through federal courts, each seeking an injunction to immediately halt the rule. Meanwhile, insurance companies and agents are simultaneously working to comply with the rule.
 
“If you see an injunction coming down the road in the fall, then I think you kind of wait until the elections play out to resolve it,” Lemoine said.
 
Otherwise, if an injunction isn’t granted, companies are likely to pick a fiduciary route and stick with it, he added, saying, “It’s a very expensive process to change” business practices late in the game.
 
As for further regulation of financial services, Trump has said that  government regulations cost $1.75 trillion annually. He vowed to impose a moratorium on new financial regulations until the economy improves and to lead a repeal of Dodd-Frank.
 
Clinton, by contrast, promised to use the regulatory authority of the Department of the Treasury to curb the number of corporate inversions, mergers between U.S. companies and foreign corporations structured to reduce their taxes.
 
She supports Dodd-Frank and vowed to “fight for tough new rules, stronger enforcement and more accountability that go well beyond Dodd-Frank.”
Clinton is walking a bit of a tightrope, Lemoine noted. Her ties to Wall Street are well-known, but the Warren-Sanders liberal wing gained a lot of momentum during the primary campaign. Did they gain enough influence to push further regulation in a Clinton White House?
Clinton showed a willingness to move left during the campaign, leaving critics wondering how committed she will be to her positions.
 

Taxes

Trump modified his tax plan in early August to line up more with the GOP platform and House Speaker Paul Ryan’s proposals. The Trump tax plan would reduce the existing seven income brackets (with rates from 10 to 39.6 percent) to four with rates of 0, 12, 25 and 33 percent.
 
He has consistently vowed to lower the business tax rate for corporations and small businesses alike to 15 percent — down from the current top rate of 39 percent.
 
While Trump increased his tax rates with the modified plan, his proposal would still drastically reduce federal income tax rates. Nonpartisan groups claim his plan would add trillions of dollars to the national debt.
 
Most itemized deductions would be eliminated, except for charitable giving and mortgage interest. Trump favors axing the estate tax, the alternative minimum tax, the Affordable Care Act taxes and the marriage penalty.
 
Trump has said he would consider a payroll tax holiday, a temporary reduction of payroll taxes, to help the middle class. And all of his tax versions include a zero tax rate for the poorest Americans.
 
By contrast, Clinton proposes a tax increase that would substantially impact the richest Americans, according to the Urban Institute-Brookings Institution Tax Policy Center.
 
She favors a 4 percent surcharge on incomes over $5 million and a 30 percent minimum rate on adjusted gross incomes above $1 million. The Clinton tax plan also calls for limited itemized deduction benefits to 28 percent, and for increasing rates on medium-term capital gains to between 27.8 percent and 47.4 percent.
 
She also wants to raise the top estate tax rate to 45 percent and reduce the threshold to $3.5 million. Her plan would limit the value of tax-deferred retirement accounts.
 
Some economists warn that Clinton’s proposals to raise the holding period for long-term capital gains and to impose a transaction tax on high-frequency traders might drive down investments and growth.
 
Tax reform is a major issue for members of the National Association of Insurance and Financial Advisors, said Jules Gaudreau, NAIFA president.
 
“Under either side, we will have challenges, and we will face those in a spirit of collaboration and try to make sure the public has the right to plan for their financial future using the products and services of our members,” he said.
 
As for the Federal Reserve, Trump has promised to deliver his reality TV signature line to Chairwoman Janet Yellen on his first day in office: “You’re fired.” Conservatives are annoyed with Yellen’s management style and say the Fed has too much power.
 
While removing Yellen would be popular with the party, it might be too radical a change for the economy, Lemoine said.
 
“I think you’d have some pretty seismic shifts in the pricing of equities if he were to win and on the first day in does all those things,” he added.
 

Health Care

How to proceed with the Affordable Care Act is expected to be a main theme during the fall campaign. The most significant differences between Trump and Clinton might be on this issue.
 
Trump has vowed to repeal the ACA and replace it with “something really great.” His campaign provides six policy ideas to increase affordability, the first of which is to repeal the ACA. The remaining five points are:
 
  • Allow the sale of health insurance across state lines.
    This could be difficult as health insurance is regulated by each state. An insurer must be licensed in a state and obey the laws of that state to sell insurance there. 
    Since laws differ, sometimes significantly, from state to state, it is unclear how this would work, experts say.  
  • Permit tax deductions for health insurance. 
    Consumers who purchase health coverage outside the workplace must use after-tax dollars. This proposal would permit them to use pretax money. 
  • Expand Health Savings Accounts. 
    A bipartisan idea, HSAs allow employees to use pretax dollars to pay for health care not covered by insurance. About 20 million Americans already use HSAs.
  • Increase price transparency.
    While the proposal doesn’t specify how to achieve this, the idea is to give consumers the costs of treatments. Americans would shop around for the best price if they only knew the cost of treatments, the Trump campaign said.
  • Block grants of Medicaid to the states.
 

Public Option

Clinton’s proposals start with defending the ACA. For months, she campaigned on some basic ideas to do that — expanding financial protections for people with high health care costs, providing more subsidies to help middle-income people buy their own insurance and reining in high drug prices through government intervention.
 
Then, late in the campaign, Clinton lurched left. Most notably, she announced support for allowing Americans to buy in to Medicare at “55 or 50 and up.” The idea is known as a “public option” and has been around for a while.
 
Conservatives don’t like the idea because they say it represents a slow expansion of a purely government-run health care bureaucracy.
 
Public option supporters say a government-run plan would add another element of competition into the health insurance marketplace and would lower premiums, especially if the government is able to dictate low reimbursement rates to doctors, hospitals, drugmakers and other medical care suppliers.
 
But those who represent the agent community say that a public option actually would decrease competition rather than increase it, and would hinder consumer access to Professional advice.
 
“Our concern has always been that a public option — a government plan — makes it less of a level playing field for private plans,” said Michael Keegan, senior vice president with Health Agents For America (HAFA). “We’re concerned about consumers’ ability to have plans to choose from.”
 
Keegan pointed to the health insurance exchanges and health insurance co-ops that were established under the ACA as examples of why a public option would end up costing the government more money. A number of insurance carriers whose products were sold on the exchanges have cited enormous financial losses from their ACA business, while 16 of the original 23 co-ops have shut down because they could not afford to remain in operation.
 
A public option that is financially self-sustaining “is a great idea in theory, but if you want to put it into practice, I don’t think those numbers will add up,” said Diane Boyle, senior vice president of government relations for NAIFA. 
 
“Would it throw more competition into the mix and drive costs down?” she asked. “If anything, it would exacerbate cost shifting and drive prices up. How can it be self-sustaining? Where does the money come from? Nobody is saying.” 
 
 

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