As the Donald Trump administration and a new Congress take control in Washington, advisors can expect widespread easing of the regulatory reins around such areas as retirement, tax and investing policies.
Debates are in full swing regarding the fate of the U.S. Labor Department's fiduciary rule on retirement accounts, leadership of the U.S. Securities and Exchange Commission and the anticipated full-frontal focus by the Trump administration and Congress on tax reform — both individual and corporate.
Even ways to reform entitlement programs such as Social Security were being floated by lawmakers before year-end. U.S. Rep Sam Johnson, R-Texas, chairman of the House Ways and Means Social Security Subcommittee, introduced legislation that he argued will cut Social Security benefits and permanently save the program.
Johnson has said that his "common-sense plan is the start of a fact-based conversation" about how to save Social Security, and he urged other lawmakers "to also put pen to paper and offer their ideas about how they would save Social Security for generations to come."
In the tax arena, Trump and the Republican-led Congress have vowed to pass reforms in 2017.
Andy Friedman of The Washington Update points out that Trump's campaign materials call for a top individual tax rate of 33 percent on ordinary income (down from close to 40 percent) and a top tax rate of 20 percent for capital gains and dividends (down from close to 24 percent). Trump and Congress "would repeal the 3.8 percent surtax on investment income instituted under Obamacare," Friedman said.
While the effective date of tax reform is uncertain, Friedman, a former tax attorney, said he believes lower tax rates would apply retroactively to the beginning of 2017. "Rates early next year could reflect the full rate reduction, or a reduction to somewhere between the old and new rates," he said.
Either way, "investors would be well advised to plan for lower taxes next year," Friedman said, and investors should "redouble their efforts to defer income into 2017 and accelerate deductions into 2016."
Lower tax rates won't last forever, Friedman warned, as congressional procedural rules are likely to require that the lower rates "sunset" in 10 years.
"Before then, a Democratic Congress — or any Congress concerned about outsize deficits in future years — could raise tax rates again. Thus, investors must plan for 'tax volatility'—the concept that over time tax rates ebb and flow," Friedman said.
As for corporate tax reform: "It's coming," said Greg Valliere, chief global investment strategist for Horizon Investments. The top corporate rate will plummet from 35 percent to about 20 percent, he said in a recent commentary, "but there are lots of close calls on specific provisions. There's already fierce lobbying over issues like 'border adjustability,' which would reward U.S. exporters and punish importers."
Any business tax reform will put the U.S. tax code in sync with codes in "most of the developed world," Valliere said. A reform bill "will adopt a 'territorial' system that would only tax the profits of U.S. firms' business in this country, a dramatic reform that should eliminate tax inversion deals that have seen U.S. companies relocate around the globe."
However, Valliere notes that such reform "could be complicated by the hottest theme in corporate taxation — border adjustability — which would tax goods on where they are consumed rather than their exports."
New leadership at the SEC, Labor Department
Ex-U.S. attorney Debra Wong Yang, a partner in Gibson, Dunn & Crutcher's Los Angeles office, is reportedly a leading contender to lead the SEC under Trump. Yang was a lead attorney involved in the internal investigation that cleared New Jersey Gov. Chris Christie in the "Bridgegate" affair.
SEC Chair Mary Jo White announced she would resign at the end of the Obama administration in January. She told lawmakers in recent comments that the agency will not propose a uniform fiduciary standard rule before her departure.
