A divided government? No problem, most advisers say

Financial advisers are looking forward to a divided government — whether it results in bipartisanship or gridlock in Washington.

As vote counting continued in several states Thursday afternoon, Democratic presidential nominee Joe Biden was moving closer to obtaining the 270 Electoral College votes he needs to defeat President Donald Trump.  

Control of the Senate also was up in the air, but it appeared Republicans were poised to maintain a slim majority. Democrats lost some House seats but would retain a majority in that chamber.

Mike Gerber, chief corporate affairs officer at FS Investments, welcomes the prospect of shared federal power.

Biden and Senate Majority Leader Mitch McConnell, R-Ky., have a history of cooperating from Biden’s tenure in the Senate and as vice president and they can work well with House Speaker Nancy Pelosi, D-Calif., Gerber said.

“Because of this dynamic, I’m optimistic we will see stimulus and maybe even an infrastructure package,” Gerber said. “There’s a strong argument to be made that a divided government will be positive for the economy and the market.”

Eric Walters, managing partner at Summit Hill Wealth Management, said the atmosphere may be right next year for “common sense stimulus” and other constructive policies.

“My clients would like politicians to do their job and work together rather than attack each other,” Walters said. “In this situation with divided government, that’s the only option.”

The more radical ideas of each party could stall with power-sharing, said Gus Wilmerding, senior equity partner at Williams Jones Wealth Management.  Either bipartisanship or gridlock would serve to keep things in balance.

“The best of both worlds would be a functional system but working in the areas of overlap instead of the areas of extremes,” Wilmerding said.

The worst tendencies of both parties will be curbed if neither has total control of the government, said Dennis Nolte, vice president of Seacoast Investment Services.

“Gridlock is the preferred method of government right now because both parties are off the rails in their own direction,” Nolte said.

DIALING BIDEN BACK

If Biden enters the White House facing a Republican Senate, he likely would have to dial back some of his tax plan, which would raise federal revenues by about $2.4 trillion over the next decade. He has proposed raising income taxes on people making more than $400,000 annually, boosting capital gains taxes to ordinary rates for people making more than $1 million and hiking estate and corporate taxes.

“It’s would be highly unlikely in a divided government that the platform that Joe Biden ran on” would become a reality, said Hank Smith, head of investment strategies at Haverford Trust Co. “All of that would be off the table. That’s one of the reasons you’re seeing the stock market rally as hard as it has in the last couple days.”

That would suit Dan Herron’s high net worth clients just fine. Their taxes were lowered by the 2017 tax reform bill. It’s unlikely those provisions will be completely undone — or legislation that takes an entirely different approach would advance — if Republicans control the Senate.

“Major tax reform takes a lot of moving parts,” said Herron, principal at Elemental Wealth Advisors. “I honestly don’t think a lot is going to change.”

But he would like to see election winners declared soon so he can begin to factor the changing political landscape into financial planning.

“I just want it to be over so I can start pinpointing where we’re going to go as a country,” Herron said.

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