Now that inauguration day has passed, Donald Trump is the 45th president of the United States. Trump made many campaign promises, and many of us are wondering which of them will become a reality. He has been busy in his first few days as POTUS, signing multiple executive memos that show he is serious about following through on his promises.
We not only have a new president, but we have also had a transfer of power from the democratic party to the republican party, with the latter now holding control in both the Senate and the House. As a result, we can expect to see changes; we just don’t know the specifics of how they will unfold.
In the meantime, let’s look at three key financial issues to watch.
What Will Happen to the Affordable Care Act?
The Patient Protection and Affordable Care Act (ACA) has been the cause of conflict and criticism since its enactment in 2010. The program, commonly known as Obamacare, has been dealing with rising premium costs and health-care providers exiting the exchanges. One of Trump’s primary campaign vows was to repeal and replace the legislation, but we still don’t know what the replacement will look like.
Trump has declared that this action will be one of his top priorities to be addressed in his first 100 days in office. But don’t expect Obamacare to go anywhere fast. Around 20 million Americans currently have coverage under the ACA, and there is no clear replacement plan in place to take care of these subscribers. What will give many people peace of mind is that Trump has shown flexibility in keeping some provisions, such as ensuring that people with pre-existing conditions continue to have coverage and extending coverage to dependents up to age 26 on their parents’ insurance plans. But other aspects of the program, such as individual and employer mandates, could be amended or removed.
To repeal a program this extensive, one that affects the daily lives of many Americans, is not an easy task. There will probably be changes ahead, but they won’t happen right away.
How Will Tax Policies Change?
Another issue that Trump spent a lot of time and energy on during his campaign is that of large-scale tax reform. This is a matter that is of utmost importance for House Republicans, who published a tax reform plan in early 2016. This blueprint explained a summary of policies that could form the foundation of new legislation in 2017. Trump’s tax plan is not too far off from the House Republican ideal, making tax reform likely.
Until they are enacted, we can only predict what the new laws will look like. The main areas both the House and Trump want to focus on are reducing the number of income tax brackets from seven to three (12%, 25%, and 33%), increasing standard deduction amounts and limiting the use of itemized deductions, and repealing the federal estate tax, alternative minimum tax, and 3.8% net investment income tax. Both plans strive to lower the current business tax rate from 35% to either 15% (Trump) or 20% (House).
Along with the similarities, there are also differences between the plans, so government forces will have to work together if they truly want to see change to the current tax legislation.
What Will the Markets Do?
Contrary to the predictions of many financial experts, Trump's unexpected victory sparked a moderate stock market rally with stocks trending higher after election night.
Trump has been vocal about his pro-business agenda, and this upswing shows that investors may be optimistic that his position could help the markets continue its upward trend of the past few years.
But that’s just the stock market. Surprisingly, bond prices, led by the benchmark 10-year Treasury note, declined following the election and continue to trend downward. In these early days, money flowing out of Treasuries suggests that bond investors may see a Trump presidency as leading to higher inflation and higher interest rates due to a combination of more protective trade policies (as we’ve already seen with Trump backing out of the Trans-Pacific Partnership) and heavier government borrowing to fund infrastructure spending and reduce taxes.
The markets are bound to undergo even more swings as investors react to Trump’s actions and try to figure out what the new administration might do. Remember, government policy isn’t the only factor affecting the market. International events, corporate earnings, and oil prices also play a primary role in market volatility. Your best bet is to keep your eyes on the long-term, align your risk tolerance to your portfolio, and make sure your investments are diversified appropriately.
Change is coming. But that doesn’t mean you need to worry about your portfolio or your financial plan. If you have concerns about how the new administration may impact your tax strategy, your investments, or your overall financial goals, don’t hesitate to reach out to me at 858.756.0004 or email [email protected] to make sure your portfolio is as healthy and protected as possible.
About Deb Sims
Deborah Sims is the Principal of Estate Management Group, a wealth management and financial services firm offering comprehensive and customized strategies to help her clients manage their assets and feel confident in their future. Her mission is to serve as her clients’ most trusted wealth advisor through professional knowledge, integrity, and personalized wealth management services. Based in San Diego, California, Deb’s team has offices in Rancho Santa Fe, Old Town, and Del Mar. She invites you to contact her team today to learn more about how they can help you.
Opinions expressed are that of the author and are not endorsed by the named broker dealer or its affiliates. All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy. Certain Statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.