Andy Friedman of The Washington Update.

While President Donald Trump should have “little trouble” getting much of his agenda through Congress, though a full repeal of the Affordable Care Act will be tough, the thrust of Trump’s policies toward the financial sector should be “positive,” but with likely “hiccups along the way,” Andy Friedman of The Washington Update says.

Friedman, in his latest white paper, predicts how Trump’s policies will affect investing, taxes and the markets.

Indeed, Trump told business leaders Monday that his administration is committed to rolling back regulations by 75%, “maybe more,” as well as cutting taxes for the middle class and for businesses — to a 15% to 20% business tax rate from 35%.

As with repeal of the ACA, Trump has suggested that he would also seek to repeal the Dodd-Frank Act, but as in the case of the ACA, “the Senate filibuster rule will preclude full repeal of Dodd-Frank.”

While Trump can roll back many of former President Barack Obama’s executive actions without congressional approval, there are “checks on Trump’s plenary ability to implement his policies,” Friedman said.

In the Senate, 60 votes are required to overcome a filibuster and pass most legislation. While the Republicans have a majority in the Senate, they do not have 60 votes.

However, Congress’ “reconciliation” procedure “permits the Senate to pass most spending and tax legislation with a simple majority,” Freidman explains. “House Speaker Paul Ryan already has said he plans to use this procedure to pass much of Trump’s fiscal agenda, such as tax reform.”

Unlike the ACA, Dodd-Frank has “few financial underpinnings that Congress can eliminate through the reconciliation process,” he notes.

Trump can “undermine Dodd-Frank and other corporate oversight through more lenient regulation and enforcement,” Friedman continues, and could “water down the Volcker Rule and other Dodd-Frank regulation.” Another measure Trump could take is to instruct the Securities and Exchange Commission “to reduce enforcement activities that many Republicans regard as counter-productive.”

The Consumer Financial Protection Bureau, which Republicans “find particularly nettlesome,” he adds, “will remain, but its activities almost certainly will atrophy greatly” under Trump’s administration.

As to taxes, Friedman predicts that the “odds are high” that Congress will pass legislation reducing tax rates in 2017, though the effective date is uncertain. “There is a strong likelihood that lower tax rates would apply retroactively to the beginning of 2017.”

Trump’s tax plan, which follows the tax reform “blueprint” issued last July by the House Republicans, calls for not only eliminating the alternative minimum tax, but also includes the following changes to individual taxes: a 33% top individual rate; a 20% top capital gain and dividend rate; a repeal of the Obamacare 3.8% surtax; a cap on itemized deductions at incomes of $200,000 for couples; a repeal of the estate tax (including stepped-up basis for joint estates exceeding $10 million); and a tax on life insurance buildup for high earners. Congress will likely consider curtailing deductions and exemptions to offset revenue lost by the lower tax rates, Friedman opines, with “Trump’s proposals to limit itemized deductions and to tax insurance buildup” as examples.

Other changes likely will be “loophole closers,” characterized by Friedman as “less controversial tax changes to curtail what many members believe are unduly generous tax benefits,” with examples of loophole closers including:

  • Curtail “stretching” of inherited IRAs and 401(k)s;
  • Apply required minimum distribution rules to Roth IRA accounts beginning at age 70-1/2;
  • Limit Roth IRA conversions to pretax dollars; and
  • Treat all distributions from S Corps and partnerships to owner-employees as subject to employment taxes.

Congress will also be tasked in the first quarter with addressing annual fiscal deadlines, as government funding runs out on April 28, with funds having to be appropriated before then to avoid a government shutdown.

Moreover, Friedman continues, “the government’s authority to continue to borrow ends on March 17, after which Congress must raise the debt ceiling to avoid a default on U.S. debt outstanding. If the government cannot borrow additional funds, it cannot pay interest on debt outstanding. Fiscal hawks in the House are threatening to use these deadlines to force reductions in spending, a goal at odds with Trump’s desire to increase federal outlays and further raising the prospect of Congress curtailing the extent of his programs.”

— Check out When Trump Tweets, Investors Listen on ThinkAdvisor.