More On Tax Planningfrom The Advisor's Professional Library
- Cafeteria Plans The income tax treatment of cafeteria plans is key to their popularity. Learn how to maximize the tax benefits of these “flexible benefit plans”.
- Long Term Care Insurance: Premiums While premiums for qualified long-term-care insurance may be deductible as medical expenses there are exceptions to this general rule. Learn how to avoid unnecessary tax liabilities.
President Barack Obama won re-election to a second term Tuesday night, handily defeating Republican challenger Gov. Mitt Romney in the electoral college vote and taking six of seven so-called “swing states,” with Democrats retaining their majority in the Senate and Republicans theirs in the House of Representatives.
With Florida and its 29 electoral college votes still too close to call as of Wednesday afternoon, President Obama has 303 electoral votes versus 206 votes for Governor Romney. In the popular vote, Obama has received 60.19 million votes, or 50.4%, to Romney’s 57.47 million votes, or 48.1%.
In the Senate, the final tally shows there will be 53 Democrats in the 113th Congress, compared to 45 Republicans and two independents (51 are needed for a majority). In the House, the Republicans will have at least 234 seats (218 needed for a majority) while the Democrats will have at least 192 seats; there are still nine House seats without a clear winner as of 3:00 PM Eastern time on Nov. 7. In the states, five new Democratic governors were elected Nov. 6, yielding a total of 18 Democrats, while the GOP picked up four new governorships, giving the Republicans a total of 30; precincts in Washington state and Montana are still counting votes in their governors' races.
In his acceptance speech early Wednesday morning, Obama, 51, said, “We know in our hearts that for the United States of America the best is yet to come,” but for advisors and their clients, what is sure to come before year’s end is the package of debt, deficit and tax issues collectively called the fiscal cliff that must be addressed by the current Congress, even if only to extend the cliff deadlines into the New Year to be dealt with by the 113th Congress.
However, with Tuesday’s election results, we now not only know which party has control of which house and which new faces we will see in the Capital—notably Elizabeth Warren of CFPB fame who won her Massachusetts Senate race—but also have a clearer focus on who will be leading the key congressional committees that oversee issues of particular import to advisors and their clients.
As Karen Tumulty wrote in Wednesday’s Washington Post, the election may have “sorted out winners and losers, but it left intact a polarized governing structure in Washington that has been unable to produce much more than gridlock over the past couple of years.”
In his day-after blog for AdvisorOne, Investment Adviser Association Executive Director David Tittsworth (left) writes that “perhaps the biggest irony of the elections is that, after all is said and done, we’re essentially ending up back where we were on both ends of Pennsylvania Avenue.”
As for the individuals who will help shape the agenda for advisors of all kinds in Washington, Tittsworth notes that it will fall to Obama “to figure out who will replace Tim Geithner and Mary Schapiro (both of whom are likely to call it quits in the near future), and whether Hilda Solis (and Phyllis Borzi) will continue at DOL and Gary Gensler at the CFTC.”
But with his 25 years of experience traversing the halls of power in Washington as a congressional aide and advocate, Tittsworth notes that “you can call me a coward for not making predictions about who will be appointed and what their agenda will be,” but that his experience has taught him that “such political appointments are extremely difficult to predict—and that predicting those appointees’ ultimate track record is even more tenuous.”
A statement released late Tuesday by the Financial Services Institute congratulated Obama on his victory, with FSI President & CEO Dale Brown (right) urging Obama to “carefully consider the closeness of the election results as he evaluates his regulatory policy priorities for a second term. Clients and their independent financial advisors and financial services firms need a healthier, more business-friendly regulatory environment.”
Promising to “remain vigilant in our advocacy efforts,” Brown wrote, “We have many advocates in elected and regulatory positions who understand our needs and our importance to hardworking American investors. Let’s get to work.”
In an interview Wednesday, Dan Barry, managing director of government relations and public policy for the Financial Planning Association, said that many "tax and budget and fiscal issues were put on the back burner until after the election," but that with the election decided, "everybody will be going full tilt dealing with the fiscal cliff, the Bush tax cuts and the AMT."
As for the election itself, Barry quipped that it feels like "we've been on the Western Front" for the last four years and that on Tuesday, "the electorate just handed out more shovels." With plenty of experience inside the Beltway, Barry suggested that on the pressing fiscal issues facing the country, the two parties will be "forced to compromise to get something done," but that beyond dealing with the fiscal cliff this year, the cooperation "won't lead to any new form of bipartisanship." He worries that "coming to an understanding" on the fiscal cliff won't lead the parties to "compromise on anything more than they have to."
On the issues most affecting regulation of advisors, Barry (left), aaid "I don’t expect too much to move because of the election." What's more important, he suggested, will be "Who's the SEC chair, who's the chair of the House Financial Services Committee?" He expects "more hand-to-hand combat" in the Congress, with Republicans "nipping around the edge of Dodd Frank," such as on funding for the aforementioned Consumer Financial Protection Bureau.
On the overrall impact of the elections, Barry said that "on the margins, Obama has a bit more leverage than he had before," and despite Obama's election night offer to Romney to have discussions with the President on "how to move the country forward," he suggested that Romney's national political ambitions may well be at an end: "It will be hard for Romney to come back four years later and say he could win" when in 2012 "Obama was beatable."
Phillips Hinch, assistant director of government relations at the FPA (right), said in a separate interview with AdvisorOne on Wednesday that prior to the election he had spoken to some Republican congressional staff members who thought that “Obama would blink again and extend for another year” the Bush-era tax cuts. However, Hinch said that Obama’s re-election “clearly changes the dynamic.” He says that now “it wouldn’t be surprising to see some softening on the Republican side; they may not be willing to raise [income tax] rates” but rather offer “to get rid of some deductions, but they don’t have the leverage they need” now to do so.
The bottom line? “The only way taxes don’t increase on the wealthy is if they hammer out a framework for tax reform in the future, so it would be silly to have new tax rates” in the interim. “I wouldn’t call it a deal, but a framework” for tax reform, but Hinch is skeptical that “they can get that done in the time they have.” Moreover, he says, “Democrats would have to be willing to go over the cliff to reset tax rates—that’s not an appealing outcome.”
In what may be the first inkling of prospects for such a "framework" in the Congress, Speaker of the House John Boehner, R-Ohio, released Wednesday the text of a planned speech in which he says his party is “willing to accept new revenue” to address the nation’s growing debt and avoid a partisan battle over the coming fiscal cliff.
In the text of the speech, the Speaker begins by saying, “if there is a mandate in yesterday’s results, it is a mandate for us to find a way to work together on solutions to the challenges we face together as a nation.” Later, he says, “Just weeks away now looms the so-called fiscal cliff, a combination of automatic spending cuts and tax increases mandated by law."
Boehner says that “For purposes of forging a bipartisan agreement that begins to solve the problem, we’re willing to accept new revenue, under the right conditions.” He prefaces that statement by saying “There is an alternative to going over the fiscal cliff, in whole or in part.
"It involves making real changes to the financial structure of entitlement programs, and reforming our tax code to curb special-interest loopholes and deductions. By working together and creating a fairer, simpler, cleaner tax code, we can give our country a stronger, healthier economy."
Following, AdvisorOne reviews the leadership positions of some key congressional committees. And in addtional reporting later, AdvisorOne will explore the regulatory, investing and economic impacts of Tuesday’s election.
The House or Representatives, where all 435 seats were up for re-election on Tuesday, remains in Republican hands, where the GOP will hold at least 233 seats while Democrats will hold 191 seats. Eleven House races are still too close to call as of Wednesday morning; 218 seats are needed for a majority.
In the Senate, Democrats retain their majority, with 51 seats held to 44 for the Republicans; there are also two independents that will sit in the 113th Congress, with three seats still too close to call.
As for specific committees in Congress that have oversight of issues of particular interest to advisors and their clients, here’s how the leadership is shaping up in the new Congress.
In the 112th Congress, this committee was chaired by Daniel Inouye (right), D-Hawaii, with Thad Cochran, R-Miss., as ranking minority member. Neither man faced election Tuesday, so will likely remain in their positions in Appropriations.
Chaired in the 112th Congress by Tim Johnson, D-S.D., who was not up for re-election this year, the balance on this committee will remain the same. Ranking Republican Sen. Richard Shelby, R-Ala., was also not up for re-election.
Committee majority members Sherrod Brown, D-Ohio; Robert Menendez, D-N.J.; and Jon Tester, D-Mont., all won their re-election battles. Two other majority members, Daniel Akaka, D-Hawaii, and Herb Kohl, D-Wis., decided to retire this year, but both seats remain in Democratic hands. Republican member Bob Corker, R-Tenn., also won his re-election bid.
While only speculation at this time, Elizabeth Warren, the brains behind the Consumer Financial Protection Bureau and long a Wall Street critic, topped Republican Sen. Scott Brown in the Massachusetts Senate race, and could find herself a candidate for this committee.
In an interview Wednesday, Dan Barry of the FPA said it would be "interesting" if Warren did find a seat on the Banking Committee. Specifically, with Warren's "reputation as a firebrand" and current chairman Johnson, "who's much more moderate" and hasn't had an "aggressive agenda," Barry thinks "it will be interesting to see how that dynamic plays out."
The chairman of this committee in the 112th Congress, Kent Conrad, D-N.D., did not seek re-election, but Democrats held the seat in Tuesday’s election. Speculation before the election was that Sen. Patty Murray, D-Wash., would be the new chairman of the Budget Committee.
Chairman Max Baucus, D-Mont., does not face re-election until 2014. Ranking Republican Orrin Hatch handily won re-election in Utah.
Health, Education, Labor and Pensions
Chairman Tom Harkin, D-Iowa, also doesn’t face re-election until 2014. So too does Mike Enzi, R-Wyo., ranking Republican on the Committee.
Harold (Hal) Rogers (left), R-Ky., chairman of the committee and 32-year veteran of Congress, won his re-election bid in a landslide.
Ranking member Norm Dicks, D-Wash., is retiring this year; the most senior member is Marcy Kaptur, D-Ohio, who is also the most senior woman in the House. Nita Lowey, D-N.Y., also seeks the position of ranking Democrat. Both women retained their seats in Tuesday’s election.
Paul Ryan, R-Wis., who chairs the Budget Committee in the 112th Congress, lost his vice presidential bid but retained his House seat in Tuesday’s election. Republican Scott Garrett of New Jersey also won his re-election from New Jersey’s 5th Congressional District.
Ranking member Chris Van Hollen, D-Md. was re-elected in Maryland’s 8th Congressional District.
Financial Services Committee
This committee is chaired by Spencer Bachus, R-Ala., who won re-election in Alabama’s 6th District.
The committee’s ranking Democrat in the 112th Congress is Barney Frank of Massachusetts who decided not to run for re-election this year. Maxine Waters, D-Calif., would take over Frank’s spot should seniority decide the matter; she won her re-election bid Tuesday in California’s 43d Congressional District.
However, she could be challenged by Carolyn Maloney, D-N.Y., who is the next-senior Democrat. She retained her congressional seat on Tuesday.
View complete election coverage on AdvisorOne’s Election Impact 2012 home page.
View IAA Executive Director David Tittsworth's blog, "The Morning After," for this Washington insider's reflections on the election, and view AdvisorOne and Research magazine editor Janet Levaux's musings on what advisors can learn from Obama and Romney about communicating with clients.
For additional pre-election coverage of the key House and Senate Committees, view this archived article on AdvisorOne: 11 Key Congressional Committees for Advisors to Worry About