It isn't just about taxes this time.
It isn't just about taxes this time.
The entitlement systems of Social Security, Medicare and Medicaid, and the pressing concerns of health care, energy policy, environmental regulation and trade are on the minds of financial advisers as they weigh the pros and cons of the presidential candidates.
While taxes historically have been the most pressing concern for advisers in elections, the growing burden of entitlements is the biggest worry for certified financial planner Scott White, president of Scott White Advisors, a Fort Myers, Fla., advisory firm that manages $75 million.
The presumptive Democratic nominee, Sen. Barack Obama of Illinois, proposes increasing Social Security taxes on people earning more than $250,000 a year, while Republican rival Sen. John McCain of Arizona supports supplementing the current system with personal accounts.
Mr. Obama endorses "automatic" individual retirement accounts, in which payroll deductions are made automatically to fund IRA accounts, and he wants government matching grants on 50% of the first $1,000 in retirement savings made by families earning less than $75,000 a year.
"We may be able to save Social Security, but Medicaid and Medicare, no way we can support that," Mr. White said.
The role of entitlements has to be taken into account in constructing financial plans for clients, he said. "From the role of a financial planner, we make assumptions when we plan for somebody's retirement that those programs will be there in the form they are now," Mr. White said.
"The ideal candidate would have some type of safety net, but not force the vast majority of Americans who can take care of themselves to be in the same type of program," Mr. White said. "I'm not a big McCain fan, but he seems to be more on line with people taking personal responsibility to take care of themselves."
ENVIRONMENTAL REGS
Charles Stanley is concerned that environmental regulation will dampen economic growth over the next four years. Mr. Stanley is a certified financial planner with Capital Financial Advisors LLC of San Diego, which manages $250 million.
"Where it's going to hurt us is in our energy policy," Mr. Stanley said. "We need to be drilling or building nuclear plants, all of which are being blocked by environmental lobbies."
Pursuing the agenda of environmental groups, he believes, "puts a damper on energy production and keeps the costs up."
If other programs, such as universal health care, are also enacted, that would lead to economic stagnation, he fears.
Mr. McCain favors greater environmental regulation than more conservative Republicans. Both Mr. McCain and Mr. Obama endorse a "cap and trade" system under which pollution emissions are capped, but companies can buy or sell emission credits. Both candidates call for reducing carbon emissions substantially by 2050, with Mr. Obama calling for reductions of 80% below 1990 levels and Mr. McCain calling for reductions of 60% below 1990 levels.
Mr. McCain also calls for suspending the 18.4-cent federal gas tax and 24.4-cent diesel tax this summer, which Mr. Obama charges would undermine the transportation infrastructure. Mr. Obama proposes $150 billion in spending on alternative energy research, while Mr. McCain has called for opening the continental shelf for oil exploration. In addition, last week he proposed spending $2 billion to build 45 nuclear reactors by 2030.
PROTECTIONISM ISSUES
Protectionist sentiment in the country could be dangerous, says David Hulstrom, founder and president of Financial Architects LLC in Woodstock, Ga., which manages $10 million.
"Protectionist sentiment is multifaceted," he said. While he's not against imports, Mr. Hulstrom is concerned about "people coming in from overseas," he said. "Every day, companies have to locate very skilled, sharp people overseas because they can't find them in the United States."
Mr. McCain wants to reduce trade barriers through trade negotiations with other countries. Mr. Obama wants to renegotiate the North American Free Trade Agreement to support higher labor and environmental standards.
While not the dominant issue, taxes are still a big concern for many advisers. The 15% capital gains tax, set to rise in 2011 to 20% under current law, is a major concern, said Stephen Blum, president of Strategic Wealth Planning in Dallas. "That one has come up a lot with our clients," said Mr. Blum, whose firm manages $50 million.
Mr. McCain wants to make the Bush tax cuts permanent, which would keep both capital gains and dividend tax rates low, while Mr. Obama prefers raising the rates to a maximum of 28% for couples making at least $250,000 a year.
Individual income tax rates also would revert to earlier levels for those high-income families under Mr. Obama's plan, to a maximum of 39.6% instead of the current high of 35%.
Mr. McCain has also said he wants to create a simplified income tax system, but he has not yet come out with any specifics.
"Financial advisers and investors are foremost concerned about the health of the economy and the long-run growth of the economy," said Austan Goolsbee, an economics professor at the University of Chicago Graduate School of Business and senior economic adviser to Barack Obama 2008, based in Chicago.
Mr. Obama also is calling for reducing the deficit, which would help equity markets, Mr. Goolsbee said. "The most important thing for investors is how the economy and stock market are doing," he said.
"There is one candidate in this race who will cut taxes from where they are today. That candidate is John McCain," while Mr. Obama would raise taxes, said Douglas Holtz-Eakin, senior policy adviser to John McCain 2008, based in Arlington, speaking last week at a lunch in Washington sponsored by The Tax Council of Washington.
E-mail Sara Hansard at shansard@investmentnews.com.
