Here’s some food for thought regarding the aftermath of Watergate: “The great paradox of one of the worst presidential scandals of the 20th century was that it forced candidates to stop attacking each other and start persuading the nation that they could be trusted.”1
Wouldn’t it be nice if the 2020 elections followed this same pattern? Yet even without Republican primaries, the spectrum of Democratic candidates has demonstrated that competition can be cutthroat, no matter how unified a political party.
During election years, voters are asked to donate money to the political candidates they support. The candidates elected are often those who raise the most money and can therefore reach more people with their message and policy platform through advertising. In this way, donations are perhaps a good investment for individual voters and corporations. In other words, political contributions may yield a high return on investment that helps those who donate increase their own fortunes.
This is one reason why it’s important to understand both the short- and long-term ramifications of a candidate’s policy platform. Some policies may seem beneficial out of the gate but potentially have negative consequences for the long-term investor. If you’d like to discuss how the current political climate and various political policies could impact your portfolio, we’d be happy to have that discussion.
Main Street investors aren’t the only ones donating money to support their portfolios. Since 2012, Wall Street brokerages, stockbrokers, bond dealers, hedge funds and private investment firms have become the single largest source of political contributions.2
Recent spending patterns may put more pressure on choosing the most efficacious president in 2020. In the last three years, the current administration’s policies have increased the national debt by $3 trillion. The Congressional Budget Office predicts $1 trillion deficits annually over the next eight years as a result of reduced tax revenues and higher spending during the Trump years. Economists note that increased government spending is highly unusual during a strong economy — the U.S. has never had a deficit this large relative to gross domestic product (GDP) during a robust economy.3
According to the International Monetary Fund (IMF), U.S. growth is expected to drop to 2% in 2020 and decline further to 1.7% in 2021.4 In lieu of stronger economic performance, the federal government will likely need to both raise revenues and reduce spending to reverse this trend.
President Trump’s 2021 budget proposal, while unlikely to pass in its current form, does set the tone for his policy aspirations. The budget aims to reduce spending on Social Security Disability Insurance and Supplemental Security Income by $35 billion and Medicare by more than $500 billion throughout a decade. Although the cuts don’t directly affect retirement participants’ benefits, provisions within the proposal could still negatively impact beneficiaries. Perhaps most notably, the Medicare policy proposes reduced payouts to doctors and hospitals, which could result in some providers no longer participating in the Medicare program.5
Senate Leader Mitch McConnell and other GOP Congress members also have expressed the desire to cut Social Security benefits to reduce the deficit. Unfortunately, despite the robust economy and outperforming stock market over the past 10 years, a full third of today’s retirees depend on Social Security for 90% or more of their income; one in six depend on it for at least half their income.6
On the other side of the aisle, Democrats have a long legacy of advocating government spending to benefit low- and middle-income families.7 Therefore, the standard choice between spending versus austerity may once again be decided by campaign contributions and, ultimately, at the polls in November.
Content prepared by Kara Stefan Communications.
1 Sophie Gilbert. The Atlantic. June 9, 2019. “The Year Political Advertising Turned Positive.” https://www.theatlantic.com/politics/archive/2015/06/the-year-political-advertising-turned-positive/395435/. Accessed Feb. 14, 2020.
2 The Center for Responsive Politics. 2020. “Securities & Investment.” https://www.opensecrets.org/industries/indus.php?ind=f07. Accessed Feb. 14, 2020.
3 James Crowley. Newsweek. Jan. 23, 2020. “National debt increased by $3 trillion during Donald Trump’s three years as president.” https://www.newsweek.com/donald-trump-national-debt-increase-3-trillion-first-three-years-presidency-1483660. Accessed Feb. 14, 2020.
4 International Monetary Fund. Jan. 2020. “World Economic Outlook, January 2020: Tentative Stabilization, Sluggish Recovery?” https://www.imf.org/en/Publications/WEO/Issues/2020/01/20/weo-update-january2020. Accessed Feb. 14, 2020.
5 Allesandra Malito. MarketWatch. Feb. 12, 2020. “Trump’s budget proposal probably won’t reduce your Social Security check, experts say, but will it lower your quality of life and health care?” https://www.marketwatch.com/story/trumps-budget-proposal-wont-reduce-your-social-security-check-but-it-could-lower-your-quality-of-life-and-health-care-2020-02-11. Accessed Feb. 14, 2020.
6 Teresa Ghilarducci. Forbes. Aug. 23, 2019. “Trump’s Second-Term Plan For Social Security: Starve The Beast.” https://www.forbes.com/sites/teresaghilarducci/2019/08/23/trumps-second-term-plan-for-social-security-starve-the-beast/#1b6916937949. Accessed Feb. 14, 2020.
7 Kimberly Amadeo. The Balance. June 25, 2019. “Democratic Views on the Economy.” https://www.thebalance.com/democratic-economic-policies-4129140. Accessed Feb. 14, 2020.
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We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
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