Republicans last week adopted their national party platform during the Republican National Convention in Cleveland.
The New York Times called it “the most extreme Republican platform in memory.”
ThinkAdvisor examines some of the economic principles discussed in the platform that could affect financial advisors – and what industry experts are saying about them.
Following Republicans’ adoption of the platform, Greg Valliere, chief global strategist of Horizon Investments, explained in his daily “Capital Notes” newsletter why Republican presidential nominee Donald Trump has a chance to win.
“The country hates Wall Street and big banks; polls show an astonishing level of public antipathy toward the industry. Bernie Sanders has inflicted enormous damage on Hillary Clinton, labeling her as the candidate of Wall Street, and Trump sees an opening,” he writes. “Look at the issues where he has her on the defensive: trade deals, fighting terrorism, the economy, and now the big banks. This is why he has a chance to win.”
Jeff Bush of The Washington Update made the important distinction, though, that a platform does not mean policy.
“We have to be very careful with confusing a platform with policy proposals,” he told ThinkAdvisor.
(The platform is available in its entirety here.)
Republicans want to “start anew” with the current tax code.
“They alluded to a flatter or simpler code,” Bush told ThinkAdvisor.
But he added that they didn’t say how exactly they would do that.
“[The platform] left them a lot of room to further define that as they move forward,” he said.
The platform states that “wherever tax rates penalize thrift or discourage investment, they must be lowered. Wherever current provisions of the code are disincentives for economic growth, they must be changed.” It goes on to say that “we will eliminate as many special interest provisions and loopholes as possible and curb corporate welfare, especially where their erosion of the tax base has created pressure for higher rates.”
Joe Lieber, director of research and senior political analyst at Washington Analysis, expected much of this from the Republican Party.
“We would expect one of the top agenda items to be comprehensive tax reform,” Lieber said in a statement. “It may take a year or more to complete, but the markets would be fixated on the issue through 2017. We would expect a corporate rate cut from 35% to 20% to 28%, a move to a territorial system, repatriation, a closing of loopholes, and, potentially, the creation of a patent box.”
Under the GOP, Lieber suspects that “material fiscal policy, which has been absent in Washington for some time, would likely overshadow monetary policy.”
In its platform, the Republican Party called the Dodd-Frank law “the Democrats’ legislative Godzilla.” The platform claims Dodd-Frank crushed small and community banks and other lenders.
“Dodd-Frank’s excessive regulation and burdensome requirements have helped contribute to the slow economy we all endure today,” the platform states. The platform specifically targets the Consumer Financial Protection Bureau established under Dodd-Frank, calling it a “rogue agency” and accusing it of harassing local and regional banks. The platform states that if the CFPB is not abolished, it should be subject to the annual appropriations process.
Meanwhile, the platform announced its support for reinstating the Glass-Steagall Act of 1933, which prohibits commercial banks from engaging in high-risk investment.
“Perhaps the biggest surprise from [day one of the convention] was the last-minute platform plank that pledged to reimpose Glass-Steagall and its restriction on commercial banks that engage in investment banking,” Valliere writes in his daily newsletter.
This is a big deal, he says, because many Democrats want to do the same thing.
“We don’t think the House would agree to reimpose Glass-Steagall, but this could be a headline risk for the banking industry in 2017,” Valliere writes.
In a statement, Dennis Kelleher, president and CEO of Better Markets, a consumer group, rips apart the platform’s suggested reform of the financial markets.
“The platform is nothing more than a bait-and-switch political stunt carefully crafted to deceive the American people,” he writes. “The claim to restore the Glass-Steagall law is the bait, but the deregulation of Wall Street by gutting the Dodd Frank law is the switch that will lead to another financial crash and cost tens of millions of American families their jobs, homes and savings.”
Kelleher argues that a Glass-Steagall law would only impact a few banks, while “gutting the broad Dodd-Frank law” would deregulate “many of the most dangerous too-big-to-fail financial titans.”
Kelleher calls to both fully enact Dodd-Frank and impose Glass-Steagall.
Bush notes that the Department of Labor’s fiduciary rule what was not specifically mentioned in the Republican platform. He suspects this is because while it is “important to us,” it is most likely seen as “esoteric” by the public.
The platform accepts that Social Security needs to be changed, calling to preserve and modernize “a system of retirement security forged in an old industrial era beyond the memory of most Americans.”
Among its promises regarding Social Security, the platform states that “current retirees and those close to retirement can be assured of their benefits.”
Bush said he thought this was interesting because recent Social Security changes have impacted both current and future retirees.
Bush said the platform also indicated that there would be no tax increase.
The platform states that “as Republicans, we oppose tax increases and believe in the power of markets to create wealth and to help secure the future of our Social Security system.”
This is problematic because “Social Security is a math formula.” In order to get a different result, something in the equation has to change, Bush explained.
According to Bush, the theme of the platform’s trade policy is a distinction between fair trade and free trade.
The platform envisions “a worldwide multilateral agreement among nations committed to the principles of open markets, what has been called a ‘Reagan Economic Zone,’ in which free trade will truly be fair trade for all concerned.” The platform also calls for “better negotiated trade agreements that put America first.”
According to Lieber, trade might “just be the most disruptive issue” for the markets under a Trump presidency.
“[Trump] has stated that he would declare China a currency manipulator, which could lead to countervailing duties against Chinese imports that can be imposed unilaterally without congressional action,” Lieber states. “In the past, bipartisan legislation has been introduced by Sens. Lindsey Graham (R-S.C.) and Chuck Schumer (D-N.Y.) to make it easier to declare a country a currency manipulator, and that legislation could arise again. Trump has also stated that he wants to stop China’s export subsidies, which he considers to be illegal.”
The platform specifically calls out China, too.
“We cannot allow foreign governments to limit American access to their markets while stealing our designs, patents, brands, know-how and technology,” the platform states. “We cannot allow China to continue its currency manipulation, exclusion of U.S. products from government purchases, and subsidization of Chinese companies to thwart American imports.”
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