If Donald Trump assumes the Presidency his proposed tax plan will create a national debt load that will dwarf his tallest tower. ‘Trump’s proposed tax plan would greatly increase the deficit, as well as the debt by $9.5 trillion over 10 years,’ said Luke Tilley, chief economist at Wilmington Trust. ‘It’s highly unlikely, bordering on impossible, that economic growth would be sufficient to overcome those deficits.’ On the other hand, Clinton’s proposals raise revenue and would help long term deficits. Nevertheless, that’s before considering the dynamic impacts and possible slowdowns in growth. ‘Hillary’s tax proposals would raise about $1 trillion in revenue over 10 years, but that’s before taking into account the possible loss of growth,’ said Tilley. Tilley adds that it is almost needless to say that ‘either plan faces a very tough road in an evenly divided Senate.’ As a result, Tilley is maintaining a pessimistic long-term, 10-year view of U.S. economic performance because of the daunting federal debt projections and the unwillingness of Congress to address it. They are both pessimistic on trade deals. In Tilley’s view, pulling back from the world and becoming more protectionist is unambiguously negative for the long-term health of the economy. One possible positive, however, is that they both would like a large infrastructure plan, which is sorely needed and would help short term growth. However, it needs to be paid for. ‘Both candidates have voiced large support for major infrastructure plans which would be beneficial in the short term for growth,’ said Tilley. ‘However, the need to be paid for to avoid a long term impact on the debt.’ Finally, there is a popular narrative that markets show significant patterns with the election cycle. Election years plus the following 2 years have had average equity market price returns of 6% to 7%, and the fourth year has had an average of 17% from 1950 to the present. However, that cycle completely failed to materialize over the past two election cycles. ‘No one should rely on this narrative for investing,’ said Tilley. ‘It’s worth noting, but not acting upon.’
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