With the potential to flip the White House and both the House and Senate on the line, the 2024 election carries the potential for opportunities and disruption, Michael Townsend, managing director of legislative and regulatory affairs at Charles Schwab, told Financial Advisor magazine.
How does Townsend see the second Trump-Biden matchup playing out in terms of impact on investors and advisors?
“You know, I think obviously it will be a very, very close race. What I find fascinating about this race is the level of people who say, ‘You know, I'm just not excited about either candidate right now,’” the political analyst said.
Pollsters are calling the huge group of unenthusiastic voters “the double haters” and what they do is really going to determine who wins the election, Townsend said.
“Even more interesting, we’re probably not going to know what they’ll do for quite a while, which is why I don't put a lot of stock in polls right now. They have a long time to make up their minds and they’ll probably change a bunch between now and November,” Townsend said.
How will the double haters vote? “They’re going to do one of three things. Hold their nose and vote for one of the candidates, vote for a third-party candidate or they won’t vote at all. And I don't think anyone knows right now how they’ll pull the trigger. But, they’ll be the ones that make the difference in six or seven key states,” he said.
If former President Trump wins, could he potentially upend the Department of Labor’s fiduciary and independent contractor rules, or even sidetrack the Securities and Exchange Commission’s and IRS’s aggressive agendas?
“If an administration flips, they tend to look at all the things the previous administration did and whether they might overturn rules or take a different approach. That’s happened on both sides over the years and I certainly think that would be the case this time,” Townsend said.
There's also the question of what the outcome of the presidential matchup would mean for the expiring 2017 tax cuts, the looming estate tax increase and Biden’s push for taxes on the wealthy, particularly IRAs over $10 million, where he wants to require mega RMDs.
“There are two huge political showdowns looming in 2025. One is the debt ceiling. And the other is the expiring tax credits, with the highest-profile taxes being individual income taxes and estate tax rates.” Townsend said.
Factoring in future changes is the fact that the House Ways and Means Committee has created 10 tax teams to take an in-depth look at needed tax code changes and craft a potential tax bill next year.
“That bill could become a vehicle for all sorts of tax changes, regardless of who wins. To me it would be hard to predict until we see a configuration of that bill,” Townsend noted.
Where does he see Biden’s push to tax IRAs over $10 million and require mega RMDs going? “I think there is a series of proposals he’s made and the baseline proposal is increasing taxes on households making over $400,000, including a billionaire’s tax, which would apply to those making $100 million and above.
“Again, the president can make all sorts of proposals, but it will depend on the balance in Congress,” he said.
There is some likelihood that we’ll have a split Congress once again after the elections, but split in the opposite way, with Republicans controlling the Senate and Democrats controlling the House, Townsend said.
“So, there will be tradeoffs and Congress will need to find ways to raise revenues, if they extend some of those tax cuts. Biden won’t get everything on his wish list,” he added.
On Social Security, he said, “Given the debt ceiling and giant tax bill, I’m skeptical that they’ll get to that in 2025 or during 2026, which is a mid-term election year."
How crazy does Townsend think the run-up to the election will be and how does he think advisors should help investors cope with their emotions?
“There’s so much about this election that is unpredictable, I think it will be pretty crazy from here to November.
“Advisors really need to help investors think logically for the long term. Generally, markets have done well during election years, but it’s ultimately the balance of power that markets want,” Townsend said.