There’s little doubt that President Trump will carry through on the many promises that he made during the campaign that affect individuals, investors and advisors in the Wealth Management Industry. Corporations, too, were identified by then-candidate Trump as in need of rescue from what he viewed as eight years of unfavorable tax and other economic policies. What progress will be made in the first 100 days; the first year; or before 2018 Congressional elections is anybody’s guess. Here are a few guesses, though, on issues and possible timetables:
- DOL fiduciary rule. Nothing about the President, his cabinet members or appointments to the SEC or economic advisors suggests support for the DOL The President’s Executive Action on February 2, delaying implementation of the fiduciary rule rolled out by Labor Secretary Perez during the Obama administration, confirms that view. Delayed implementation by two years effectively could kill the rule altogether. The Executive Action will be balanced against the continuing war on the investment industry waged by Sen. Warren. We will likely see where this challenge is heading in the first 100 days.
- Individual and corporate taxes. Though there is competing rhetoric about tax cuts versus tax reform, the Trump Administration and Republican Congress will act quickly on attempting to deliver some changes as they view both individual and corporate taxes as punitive and providing negative incentives for business growth. The Administration’s ideas differ in many respects from those of House Republicans; both proposals will be scored by Joint Committee on Taxation as reducing tax revenues so, to offset easy opposition based on the reduction in revenues, the Administration and House Republicans will need to have a unified front.
- Estate Taxes. The Trump Administration likely will call for the repeal of the so-called “death tax.” If and when that happens, we expect the repeal to sunset but deductions for contributions of appreciated assets to public and private charitable organizations may be sacrificed. Decades of substantial estate planning likely will require modification, but estate planning will remain important for wealthy families for tax and non-tax reasons. Repeal may also open the door for significant inter-generational transfer planning.
- Valuation of Closely Held Business Interests. Proposed regulations were released by the Secretary of the Treasury on August 2, 2016, which attempt to eliminate valuation discounts applied to minority interests in closely held businesses where the business is controlled by one family. Representatives of professional organizations and taxpayers adamantly objected to the breadth of the proposed regulations, some alleging they were unconstitutional, and bills have been introduced to block the regulations. The Trump Administration will likely leave the finalization of the proposed regulations in significant doubt, but the subject should be followed in 2017.
- Carried interest. Always a favorite tax treatment of the private equity community, taxing carried interest as capital gains rather than as ordinary income may end. Oddly, President Trump and Sec. Clinton agreed on closing this loophole. However, the private equity community is well represented in President Trump’s circle of advisors, and there are conflicting reports on whether such a provision will be included in the Republican Congress’ tax plan. In any event, even if carried interest is treated as ordinary income rather than as capital gain, reductions in tax rates may offset the consequences of the change to some extent.
- Weakening the dollar. Already, President Trump has signaled that the US dollar is “too strong,” requiring efforts to weaken the dollar against other currencies in order to address the import-export imbalance. Will that increase the cost of importing goods to consumers? Standard economic theory says “yes,” and that effect seems to be at odds with President Trump’s desire to reduce, rather than increase, costs and burdens to consumers.
- Jobs, jobs, jobs. A phrase that President Trump repeated over and over. To date, his real headlines have been announcements about promises for manufacturing in the US and job creation. The Trump bump – a market rally from the election to December 13 – is attributable in part to these events. How the market will correlate to economic pronouncements by the Administration is the grist for the pundits.
- Regulations. President Trump has announced he wants to slash regulations, “maybe as much as 75%.” The magnitude is staggering. Likely targets include regulations regarded as inhibiting job creation including labor, environmental, consumer protection and tax regulations. As evident from the second Executive Action on February 2, Dodd-Frank is in the President’s crosshairs. Again, correlating regulatory reductions to market effects is akin to a Las Vegas bet. Many would say the market has “priced in” the Trump agenda but who feels comfortable relying on that theory?