When policy matters: how will the US presidential election affect the country’s wealthy?

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By Maya Imberg and Benjamin Kinnard, Wealth-X Custom Research

As November 8th fast approaches, the world will be watching as the US votes for its next president. With the country still holding stage as the world’s superpower, a new president will have the ability to change the direction of economic, trade and foreign policy, thus affecting the wealthy in significant ways. While both candidates claim their economic policies favour the middle class, how will a Clinton or Trump presidency impact the country’s wealthy?

Short term susceptibility

The financial markets clearly prefer a Clinton win, shown by movements in the stock market, oil or currencies in response to a change in election odds. For example, the Mexican peso has been moving inversely to Mr Trump’s polling numbers, and a paper by the Brookings Institution in late October predicted that global equity markets could fall by 10% to 15% following a surprise Trump victory[1]. This fall would be even greater than what we saw in the immediate aftermath of the UK’s referendum decision to leave the EU in June, when the FTSE 100 opened 8% lower the morning after the unexpected decision[2].

Given that an individual’s wealth is mainly influenced by the state of their private holdings (such as their company/ies), their holdings in the stock market and other assets (such as property), as well as currency movements, a Trump win would see the wealthy’s net assets diminish in the short term, while a Clinton victory would see them increase.

Changes to taxes and the business environment

The medium term consequences of each candidate’s tax and economic policies over four (or eight) years has a greater bearing on the wealthy. Both Mrs Clinton and Mr Trump have pledged policies to raise the effective tax rate on the highest earners, however analysis on the impact of Mr Trump’s policies are more mixed.

Mrs Clinton’s tax policy[3] includes a proposal to create a 4% ‘surcharge’ on high-income taxpayers, and to establish a 30% minimum tax on those with incomes of US$1m or more. Mr Trump, on the one hand, plans to tax carried interest as ordinary business income, which could have an adverse impact on hedge fund and private equity professionals. As over a fifth of the US ultra wealthy work in the finance, banking and investment sector[4], ending this ‘loophole’ could potentially have large ramifications for the wealthy. However, the Tax Policy Center has found that the overall impact of Mr Trump’s tax proposals would benefit the highest-income households the most, in both absolute and percentage terms[5].

Though tax rates are part and parcel of this, of arguably even greater importance to the US wealthy is the country’s general business environment and how this could change via new policies. The ability to create, grow and sustain businesses is vital for the wealthy. For example, according to Wealth-X analysis, 64% of the world’s ultra high net worth individuals (those with over US$30m in net assets) have entirely created their own wealth, in contrast to just 17% whose wealth comes purely from inheritance[6].

Of the two candidates, Mr Trump’s general stance against immigration and threats to curtail free trade pose the bigger threat to the health of the business environment. According to the National Foundation for American Policy, immigrants have founded 51% of all billion dollar start-ups in the US[7], highlighting the important role they have in creating wealth. Moreover, scenario analysis by Moody’s Analytics expects that the economy would be significantly weaker if Mr. Trump’s economic proposals were adopted, but the inverse for Mrs Clinton’s[8].

The US will continue to attract and enable the wealthy to thrive

Yet almost irrespective of the election outcome, we believe that the qualities that make the US a leader in wealth creation will remain in place. The country remains the pre-eminent leader in innovation and entrepreneurship; a result of policies and culture that have taken decades and more to develop. It remains a beacon for world-class universities, a start-up powerhouse and a top destination for the world’s best and brightest. Interestingly, numerous global companies have been founded during economic downturns, including General Motors, Disney, and Uber[9], highlighting American entrepreneurs’ ability to create wealth in difficult conditions. Whoever wins the presidency on 8 November, we believe that wealthy Americans will continue to grow and cement their position at the top of the global rankings.

 

[1] Bloomberg

[2] The Independent

[3] The Tax Foundation

[4] Wealth-X World Ultra Wealth Report 2015-2016

[5] Tax Policy Center

[6] Wealth-X World Ultra Wealth Report 2015-2016

[7] National Foundation for American Policy

[8] Moody’s Analytics on Mr Trump, on Mrs Clinton

[9] The Economist

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