Hillary Clinton and Donald Trump have very different economic plans—and we can now safely disregard them both. The real question isn’t what’s in the plans, it’s what will be possible once the election’s finally over on Nov. 8.
That depends, of course, on what happens in Congress. Polls and prediction markets now forecast that voters will elect the Democratic nominee, Hillary Clinton, president on Election Day. The odds of Democrats winning the Senate from Republicans are 50/50 or a little better, but the odds of Dems taking the House are only around 20%. So Republicans will most likely control at least one chamber of Congress for the next two years, which means split government much as we’ve had for the last six years.
Clinton’s favored policies are very similar to those of President Obama, who has struggled to get anything meaningful through Congress since 2011, when Republicans took control of the House. So Clinton might encounter the same brick wall on Capitol Hill. But a couple of things would be different under a Clinton presidency. First, Clinton is considered a better dealmaker than Obama, and more open to working with Republicans. Second, Republicans may be so chastened by another presidential wipeout that they abandon the obstructionist strategy of recent years and decide it’s time to show voters they’re able to get something done.
If that’s the case, a few important pieces of legislation could get through Congress. Here’s what to watch for:
Corporate tax reform. Clinton has been surprisingly mum on this issue, even though Democrats and Republicans broadly agree that the US corporate tax rate, at 35%, is too high, given that it’s 10 to 20 percentage points lower in many other advanced nations. That gap is the main reason US multinationals hold nearly $2 trillion in profits overseas, money that could be helping juice the American economy, but isn’t.
A corporate tax reform deal would lower the tax rate, close loopholes that some companies use to whittle their tax payments, and possibly offer some kind of tax holiday that allows multinationals to bring foreign profits home at a temporarily low rate, such as 15%. The “carried-interest” provision allowing some investing firms to declare profits as capital gains—which are subject to a lower tax rate than ordinary income—seems endangered, since Democrats hate it and Republicans find it hard to defend. A tax reform deal might also include new limits on corporate inversions—the merger of US firms with foreign companies, for tax-lowering purposes—although a more efficient corporate tax code would reduce or eliminate the incentive for inversions in the first place.
Economist Mark Zandi of Moody’s Analytics argues that Clinton’s silence on corporate tax reform may actually help it pass, since the issue hasn’t been demagogued and politicized in the campaign. But any effort to streamline and simplify personal-income taxes is probably unlikely, since Dems would demand tax hikes on the wealthy that Republicans are dead-set against.
A minimum wage hike. The federal minimum wage, now $7.25, hasn’t been raised since 2009. Clinton favors a $12 minimum wage, which seems unlikely. But a hike to $9 or so might be plausible, especially if the economy continues to strengthen, limiting the pain businesses would feel if they have to pay it. It also helps that some states and cities already have a minimum wage higher than the federal level, which means they wouldn’t be affected by a federal increase.
Immigration reform. Congress almost passed a sweeping new set of immigration laws in 2014, but some House Republicans blocked it. If Republicans fare even worse among Hispanic voters in 2016 than they have before, it will be a new siren call to do something productive on immigration. The way forward, in general, is to first come up with new ways to secure the southwest border, then establish a legal path to citizenship for an estimated 11 million undocumented people in the country, and finally, establish new pathways to America for foreigners able to make a demonstrable contribution to the US economy (such as investors, entrepreneurs, or well-educated immigrants).
Immigration is an important economic issue because the aging of the US workforce means growth in the supply of labor will diminish. That almost always leads to slower economic growth. The United States also needs new workers to help pay the Social Security and Medicare costs of aging baby boomers, who will bankrupt the system if costs aren’t curtailed or new revenue sources found.
New spending on roads and bridges. Clinton wants to spend $300 billion on infrastructure during the next five years, with the money mostly coming from new taxes on the wealthy. Those new taxes are very unlikely with a GOP House, especially if Speaker Paul Ryan plans on running for president in 2020, as many believe. But there could be some modest increase in infrastructure spending, possibly as part of a corporate tax reform deal.
Demise of the sequester. The mandatory spending cuts in most federal programs that went into effect in 2011 were suspended last year—but only for two years. So the so-called sequester will kick back in in 2017, unless Congress votes otherwise. The sequester is widely viewed as a clumsy and damaging way to cut spending, since it doesn’t prioritize what’s most and least important. A new and improved budget deal could end the sequester, and in an optimistic scenario, it might also find a few bucks to spend on new infrastructure programs.
A stock-market relief rally. A Clinton win would be a continuation of the status quo, which isn’t necessarily the best thing for an economy beset with stagnant wage and productivity growth. But it would probably mark a short-term win for equity markets, since the risks of Trump’s disruptive policies on trade and immigration would disappear.
Forecasting firm Macroeconomic Advisers predicts that a Clinton win would produce a 4% gain in the S&P 500, if only because a huge bout of uncertainty would pass. Then, markets would stop worrying about election outcomes and focus more on all the other problems in the world. That might actually be a relief.
Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.