This campaign season has seen both Donald Trump and Hillary Clinton criticize each other for being too close to Wall Street. But where do each of the candidates stand on financial reform? And what might the U.S. economy look like under a President Clinton or a President Trump? This week, we’ll take a deeper dive to compare the candidates’ ideas on boosting the economy.
Wall Street Regulation
The Dodd-Frank Act — the landmark law enacted in response to the financial crisis — defines the current financial regulatory landscape, overseeing everything from the major banks to the mortgage industry to consumer lending. It also created the Consumer Financial Protection Bureau (CFPB), the consumer’s “cop on the beat,” charged with policing many aspects of the financial sector. The future of Dodd-Frank and financial reform has been a central issue in the 2016 presidential election and provides insight on the candidates’ approach to Wall Street.
Hillary Clinton, an advocate for greater regulation of the financial sector, wants to strengthen Dodd-Frank. She has promised to increase regulatory oversight of the biggest financial institutions — banks and insurance companies — and alternative asset managers, including hedge funds and private equity. She would tighten the “Volcker Rule,” which in effect bans banks from using their own capital to make speculative bets, and enforce rules aimed at curbing Wall Street pay. Clinton also plans to tax certain types of short term, high-frequency trading to encourage investing with a longer term view.
Donald Trump, on the other hand, calls Dodd-Frank a “disaster” and wants to gut the law, blaming it for increased costs for businesses, and stifling economic growth. However, Trump is certainly not an ally of Wall Street. He has slammed the financial industry, saying: “I know Wall Street. I know the people on Wall Street… I’m not going to let Wall Street get away with murder.”
Trump’s plans include blocking the fiduciary standard for financial brokers who sell retirement products and the reinstatement of the Glass Stegall Act, which prohibits commercial banks from engaging in high-risk investment. That would effectively force a break-up of the nation’s biggest banks. Trump, who has repeatedly accused the Federal Reserve of serving as a political arm of the Obama Administration, has also said he would dramatically reduce the Fed’s power.
Taxes
The candidates are clearly divided in their plans for tax policy. Clinton plans to add new taxes, targeting the wealthiest Americans, and keeping taxes level for the middle class. Income over $5 million however, would be subject to a 4 percent surtax. She is also targeting private equity by looking to tax carried interest — how private equity managers receive much of their compensation — as ordinary income, a higher tax rate. What is unclear with the Clinton plan is precisely how this tax plan is going to stimulate economic growth or job creation.
Trump would look to cut taxes for everyone — with the largest cuts to the most affluent — and put all Americans in three tax brackets and include a 15 percent corporate tax rate, down from today’s 35 percent. Economists note, however, that the Trump proposal would reduce revenue by $5.9 trillion over a decade. While a simpler tax system with fewer loopholes and lower tax rates could benefit the economy, it is unclear how the Trump plan — with the added debt — would provide an economic boost beyond the immediate future.
Perhaps more than any election in recent history, this one has just barely scratched the surface on important issues like financial sector regulation and instead has focused more on the personalities of the candidates. After November 8, we expect the President-elect and his or her transition team to shed even more light on the direction they intend to take the country on this issue and more.
Stay tuned.
Sean Neary is an executive vice president in Washington, D.C.