Jessica L. Gibbs, CFP® [00:00:52] Thank you for joining us for this episode of Off the Wall, the podcast aimed at helping founders, executives and high net worth investors build wealth with purpose. We’ve got a hot topic today the 2024 general election. And because politics and headlines are constantly evolving, I do want to note that we are recording this episode on August 23rd. Things may have changed by the time you listen to this, to help us navigate the complex terrain of the election, and how its outcomes will affect the economic landscape is Bob Stein from First Trust. Bob has an immense background working in government. Before taking on his current role as Deputy Chief Economist at First Trust Advisors, he served as the Deputy Assistant Secretary for Macroeconomic Analysis at the Department of Treasury and as Chief Economist for the Senate Budget Committee. So he has some unique insights into the interplay between politics and economic policy. This is Bob’s third time on Off the Wall, and we are thrilled to have him back for another election season. Welcome, Bob.
Robert Stein [00:01:49] Thank you.
David B. Armstrong, CFA [00:01:49] Looking forward to this episode. We’ve been excited about it for a while. There’s so many interesting things going on, but obviously a lot has happened over the past few months. And as of today, the Democratic National Convention has just concluded and the table is basically set for November. And with that, I’ll say that one of the things I’ve always enjoyed about either our conversations podcast or just listening to you in conferences is you like to say it’s not your job to say what you want to have happen. It’s your job to say what you think will happen. Translation. Unbiased. And I’m just curious if we could get some of those opinions from you through some questions that we’re going to ask you today.
Robert Stein [00:02:26] Oh, I’d love to share them.
Jessica L. Gibbs, CFP® [00:02:28] So with that, I’m going to start at the bottom. The house. What is the likely outcome after the House election and what impact will it have on the economy, the markets, the deficits and people’s wallets?
Robert Stein [00:02:39] This is a very good question, and I really hate my answer because I like to be a little more definitive, but it really is a toss up in terms of who wins the house. I don’t think that’s the case with the presidency, as I’m sure we’ll get to. I certainly don’t think that’s the case with the U.S. Senate, but I think the U.S. House is a pure toss up. There are even possibilities that Kamala Harris wins, and it’s still a Republican House. And there is some possibility of Donald Trump winning and the Senate going Republican. But having Speaker Hakeem Jeffries narrowly in charge of the House of Representatives. So I think overall, it’s 50-50. Right now the Republicans are in charge. But given how district lines have been redrawn in certain states around the country, given the fundraising given by look at the generic ballot, which are polls of people around the country, do you plan to vote for the Democrat or Republican in the races around the country? And then given the uncertainty, because there are a lot of races around the country where people might not turn out in quite the numbers, they might turn out elsewhere because they already know who’s going to win their house race. And that might be the important race for them for whatever reason. That’s more of a factor in midterms, less so in presidential elections. But netting that all out, I literally think it is a coin toss for which party wins the House of Representatives. And I really think it’s much more important the combination between the House, the Senate and the presidency than whomever wins the House.
David B. Armstrong, CFA [00:04:06] If a scenario existed where Trump wins the White House, but the Democrats win the House and Hakeem Jeffries becomes the speaker of the House, does he become the most likely presidential candidate for 2028?
Robert Stein [00:04:21] First of all, let me put my cards on the table. I think there is a 15% possibility that Trump wins as a Republican Senate, but speaker of the House is Akeem Jeffries. And if that happens, that 15% possibility comes to fruition. Hakeem Jeffries is going to fight the Republicans tooth and nail. I’m pretty much everything they want. The one thing I do not believe will happen is that Hakeem Jeffries becoming a presidential candidate, there are simply way, way too many possible candidates on the Democratic side for 2028. Remember, we’re talking about a scenario where Trump wins. So Harris is not in the Oval Office, and Harris will very unlikely be a serious candidate for the presidency in 2028. You can easily rattle off a dozen candidates on the Democratic side who could come up before Speaker Jeffries would. Westmore from Maryland. Gavin Newsom, you’d have probably somebody from the left. Mark Cuban might throw his hat in the ring. You will possibly, but probably not have Tim Walz. You’d have Pete Buttigieg throwing his hat in the ring. Amy Klobuchar I think Elizabeth Warren’s a little too old to run. Most likely you can have Mark Warner from Virginia. You have a number of people who could really run for the presidency on the Democratic side. Gretchen Whitmer would very likely run. JB Pritzker from Illinois would almost certainly run because she has nothing else to do in the state. He can never be a senator because they already have two Democratic senators from the state of Illinois who are not going anyplace anytime soon. So if he wants to have a job, rather than just spends his parents or ancestors money, he’ll have to run for president instea. You really can go state by state. Andy Beshear from Kentucky. Some of the people who are considered for the vice presidency. Josh Shapiro for Pennsylvania. Mark Kelly from Arizona, possibly. You really do have a number of formidable names around the country. Hakeem Jeffries would be way down the list. He’d already have an enormous amount of power. Why would you run for president when, just by sitting back and helping be a kingmaker, helping guide the Democratic electorate toward their choice? You would have a potential president elected in 2028, who would be beholden to you and work hand in glove with you to enact major legislation. So I think he’d be much more interested in that path rather than pursuing the presidency himself.
David B. Armstrong, CFA [00:06:46] Kind of like Nancy Pelosi.
Robert Stein [00:06:47] Exactly.
David B. Armstrong, CFA [00:06:48] Governor Moore is an interesting one that you brought up. He’s a veteran and he’s young.
Jessica L. Gibbs, CFP® [00:06:52] And he has Oprah supporting him, which has some weight to it.
David B. Armstrong, CFA [00:06:55] And I will disclose most people know this, but I lean Republican. So when I become interested in a Democrat, it’s particularly interesting to myself. How about the Senate? Same question for the Senate. I know I’ve heard you say, and I agree with you, that it’s probably as close to a 100% probability as you can get without being 100, that there is a Republican Senate after the election, specifically because of West Virginia. But same question Jessica just asked you. But if you could answer it in terms of the Senate.
Robert Stein [00:07:23] Right now, I’d put the odds at close to 90% of a Republican Senate. I used to be like 95%. I’m going to come down a little bit to 90%. Not a major shift, but a little bit. Let’s think about what the Democrats would have to do to hold on to the US Senate. Republicans already have 49 seats. There is not one Republican seat in this cycle that has to be defended in a Blue or Democratic state. Not one. There’s only one in a marginally purple state. And that’s the state of Florida, where Rick Scott is running for reelection. He’s not going to lose. Some people are talking about Texas as a potential pickup for Democrats against Ted Cruz. They talk about this every time they talked about Beto six years ago. It’s not going to happen. The Democrats are going to waste, frankly, a lot of money. They’re going to send a lot of money to try to defeat Ted Cruz in the state of Texas. And it’s all going to be for not because in the end, Ted Cruz is going to win. The demographics have simply not changed in the direction that Democrats would like, because they’re getting a lot more upscale voters in the state of Texas. But Hispanics are shifting in Texas toward the Republican Party. So you have a lot of border Mexico counties that have traditionally been Democratic, that are now going Republican. So I just don’t see defeating Ted Cruz on the table this year. Again, Republicans have 49 seats with West Virginia. Joe Manchin is the only person in the state of West Virginia could retain that state for the Democrats. He’s not running, not for Senate, not for president, for anything. Republicans are going to win there because he had the common sense to nominate the very popular sitting governor of the state, Jim Justice. So he’s going to win. So that’s 50. Republicans are ahead in the state of Montana. They’re probably going to win that. I’m against two term or multi term incumbent Jon Tester. Even though the polls show Bernie Morano behind in Ohio, the Republican candidate. And I don’t think it’s the best candidate the Republicans could have nominated, he’s likely to win more likely than not to win, because JD Vance is Donald Trump’s running mate. So that will help the Republicans run up the score in the state of Ohio. Besides those three states that I mentioned, West Virginia, Montana, Ohio, they are underdogs in the following states, but have a fighting chance in Arizona, Pennsylvania, Michigan, State of Maryland, a deep blue state. It would be really tough for Democrats to retain control the U.S. Senate, because after losing West Virginia, they would have to run the table on all of those other competitive states Montana, Ohio, Arizona, etc., etc. just winning all of them. And I think the odds of that are only 10%. And I’m probably being a little bit generous for the Democrats. What I just told you is very different from what you see in the prediction markets, where there’s roughly a 25% chance, according to poly market investors or speculators, that the Democrats will have a sweep. I don’t know what they’re thinking. It’s possible wouldn’t take a miracle, but it would take threading the needle for the Democrats to keep control of the US Senate in this cycle.
David B. Armstrong, CFA [00:10:17] That betting line is very heavily influenced by international people, though, isn’t it?
Robert Stein [00:10:20] Correct, Polly market is international. Predicted is more domestic U.S..
David B. Armstrong, CFA [00:10:25] Let’s just say that Republicans do take the Senate. What sort of impact is that going to have on economy, markets, deficit and people’s wallets?
Robert Stein [00:10:33] It’s really the combination. So here’s the key thing. Let’s think about the Republicans taking the Senate in the context of Harris winning. I think that’s a 30% possible outcome. If that happens. All of Harris’s proposals, including the most outlandish ones involving price controls, including raising the capital gains tax to 40% plus on the highest earners, including taxing unrealized capital gains. They all fall by the wayside. That’s why I think she’s making these proposals, because they have a good idea that Republicans are going to win the Senate, and then she can generate support on the left by making the proposals. And moderate Democrats won’t really care about the proposals because they know in the end they’re not going to happen. And so if you’re a big money guy from Silicon Valley or Hollywood or finance or you’re a Democrat, it doesn’t really bother you she’s making these proposals. If you don’t think something’s going to happen, why not promised the money?
Jessica L. Gibbs, CFP® [00:11:31] Let’s get to the big show.
David B. Armstrong, CFA [00:11:32] Pom pom pom.
Jessica L. Gibbs, CFP® [00:11:34] What do you think is going to happen with the White House?
Robert Stein [00:11:37] Okay, so let’s look at the polling averages. As of this morning and they haven’t really incorporated the full effects of the convention yet. So we’ll wait and see. Might change significantly over the next week. But as of today, Kamala Harris is ahead in the Real Clear Politics polling average by one and a half percentage points. And if you look at Nate Silver, who kind of weights it by the accuracy of the pollsters in previous elections, it’s two and a half percentage points. Let’s say it’s around two percentage points that Harris is ahead by. At this point in 2016. At this point in 2020, Hillary Clinton and Joe Biden were ahead of Donald Trump by around six percentage points in the polls. Six, not two. And by way of example, in 2020, we’re today, I think it’s 74 days away from the election. We are at the same point in this cycle as we were in 2020, in terms of immediately after the end of the Democratic convention. So it’s a really a clean comparison with Biden. When you incorporate that Donald Trump won in 2016, in the Electoral College, and he came within a percentage point of winning the Electoral College last time around one percentage point better, he would have won the Electoral College. I don’t think he should panic. Another way to think about it is that there are two gaps between what the polls say and what the outcome is in the Electoral College. Gap one: the difference between what the polls say and what the actual popular vote will be. So if you look back to the last two cycles, Donald Trump did one point better in 2016 and three points better in 2020 than he was doing on the eve of the election, not back in August, literally on the eve of the election. And then you look at the gap between what the popular vote says and what the Electoral College says. Back in 2016, his advantage over Hillary Clinton in the Electoral College was two and a half to three percentage points, and his advantage over Joe Biden in the Electoral College was three and a half to four. So I’m actually going to be on the modest side for Donald Trump, and I’m going to say he’s going to do about one point better, just one in the actual vote compared to the polls on the eve of the election. And maybe I’m wrong, but that’s my best guess. I’m also going to assume that he does two percentage points better in the Electoral College than he will in the popular vote, and by two percentage points better. I mean, if he’s behind by two percentage points in the popular vote, it’s essentially a tie in the Electoral College. Again, this funny phrase, he did more better in the Electoral College back in both 2016 and 2020 that I’m giving him credit for in this cycle. So total those up. The difference between the polls and the vote and the difference between the popular vote and the Electoral College. And I think he has roughly a three percentage point advantage, so that if the average of the polls the eve of the election, literally the night before, show Harris with a three point advantage, literally 3.0, I would say it’s a toss up race. And today she’s ahead by about two, and she’s coming off a honeymoon. With her recent introduction of the American public and the convention, I think she is a little bit behind Donald Trump in terms of her likelihood of getting elected. So as of today, the one thing I can tell you for sure is that my odds will change between now and Election Day, maybe multiple times, maybe by dinner tonight. But as of right now, I think Donald Trump has about a 60% chance of winning. Harris only 40.
Jessica L. Gibbs, CFP® [00:15:06] So what do you think a Trump win would mean for the economy, the markets, the deficit, people’s wallets?
Robert Stein [00:15:12] If Trump wins, there are two scenarios. One is the Republican sweep scenario. If there’s a Republican sweep, they will almost definitely fully extend the tax cuts originally enacted seven years ago back in 2017. They may deepen them slightly on the corporate side. They may deepen them slightly by partially or fully exempting tips.
Jessica L. Gibbs, CFP® [00:15:31] Do you think they make the tax cuts permanent, or do you think they just do what they did before and they extend them for ten years?
Robert Stein [00:15:37] They extend them, I don’t think they’ll have the votes to make them permanent unless they potentially pair it with Medicaid reform. And I think they ultimately do that. But I think there’s a timing gap and they don’t make the tax cuts permanent. The other thing is I do think they tackle entitlement reform. Not in Social Security and Medicare for senior citizens, but in Medicaid, as I just mentioned. So for low income people around the United States. So I basically think they take Medicaid and block granted to the states and let the states reform and experiment with and frankly, squeeze that program over time for some budget savings. It’s not going to be overnight where they saved $1 trillion. It’s going to be gradually over a long period of time. So that could make room for some maybe deepening the tax cuts in the future, but not right away. In terms of how it affects the economy. This is going to sound really boring, and I hate to say it, but how the economy proceeds over the next 12 months has pretty much nothing to do with the election. Now, how it proceeds in 2027 and 2028 May have something to do with the election, and it may have also things to do with geopolitics and whether China invades Taiwan. I don’t think this is a key election, but the direction of the economy over the next few years. I don’t necessarily even think it’s a key election for the direction of markets over the next few years, assuming, like I do, that Harris would never be able to implement many of the outlandish policies and far left policies she’s claiming she wants to implement. So the chances are, if Vice President Harris wins, she’d face off against a Republican Senate. And I got to tell you, she would end up extending most of those tax cuts as well, just like President Obama did in 2012. I don’t see huge economic or market ramifications from this election and the way some others might say, because Harris would be stymied. And basically Trump, if elected, would probably end up continuing most policies that are already in place. I mean, Biden never appealed to Trump tax cuts. To worked on that a couple of years ago. Didn’t. So I don’t think this has huge ramifications for people’s wallets. I don’t think it has huge ramifications for the markets over the next few years.
David B. Armstrong, CFA [00:18:33] Do you assign a really high probability to if there’s a Harris White House in a Republican Senate, that the tax cuts get extended because the Republican Senate would be basically able to hold her feet to the fire by saying, if you don’t extend these tax cuts, it’s all on you. And, hey, bingo. By the time this all hits people’s tax returns, it’s going to be election cycle again and you’re going to be held accountable for all of it.
Robert Stein [00:19:00] Exactly. Let’s talk about what happened to President Obama in 2000, because.
David B. Armstrong, CFA [00:19:03] It’s essentially the same thing.
Robert Stein [00:19:04] He spent a whole year bashing a large part of George W Bush tax cuts. Bush the younger from 2001 and 2003. And then he turns around almost immediately after the election. Certainly by the end of December. And he cuts a deal with the Republicans running Capitol Hill. Why? Why would he do that after spending a year bashing those tax cuts? Because the Republicans told him that if you don’t extend those tax cuts for pretty much everyone, and you won’t get to extend them for anyone, and your party is going to take a walloping in the 2014 midterm election cycle. And then possibly a Republican gets elected in 2016. This is before Trump was on the scene. And then we could have the filibuster proof majority was 60 seats in the US Senate, and we could totally replace Obamacare. And we could do a lot deeper tax cuts than we’re talking about right now. So I think Obama saw the political tea leaves, realized that the smarter move for him politically, on the Democrats politically, was to allow almost all of those tax cuts to be extended. Relief from the alternative minimum tax, which isn’t as much of a pain for taxpayers these days. Lower capital gains tax, lower tax rates across the board. One exception at the very top. That is the one thing that Obama got out of the Republicans. The top rate was moved back to 39.6%, but everything else pretty much stayed the same. So I think that happens to Harris this time, because those tax cuts originally enacted seven years ago, are set to expire at the very end of 2025. Not this year. So how is that going to help the Democrats in the midterm election cycle? I think the Republicans were very shrewd back in 2017 when they enacted them, realizing that there might be a Democrat in office and they could really hold his or her feet to the fire in that scenario.
David B. Armstrong, CFA [00:20:48] I was going to ask you a question about sweep scenarios versus divided government, but I feel like we’ve touched on that so much. If you have any more thoughts on what potential outcomes could look like if there was either a red or blue sweep or divided government, I’d love to hear some more thoughts.
Robert Stein [00:21:04] Let me go through it in a systematic way. These percentages will change between now and Election Day. Sure. Or maybe by dinner time. Maybe. Possibly by lunch. Let’s see how I feel after I get my post-lunch coffee. But I think a Republican sweep scenario is 45% a Trump victory with a GOP Senate and a Democratic House narrow Democratic House is about 15%. Not a big percentage, but possible. And I think a lot of people are overlooking that possibility. And that’s a possibility again, where the top rate goes up. There’s probably additional Salt deduction added to that. The state local tax deduction probably goes from 10 to 20 or $25,000, because they’ll have to get some Democratic votes from some high tax states to vote for that. I think a Harris scenario with a Republican Senate is about 30%, and I think a Democratic sweep scenario is about 10% playing out the extremes.
David B. Armstrong, CFA [00:21:56] Unscripted question off the top of my head. There’s a parallel universe riding right alongside us right now with the two presidential candidates in that race, in a parallel universe.
Robert Stein [00:22:07] When did this parallel universe start?
David B. Armstrong, CFA [00:22:09] Let’s just say at the beginning of the Biden administration
Robert Stein [00:22:11] The beginning of the Biden Administration.
David B. Armstrong, CFA [00:22:12] So four years ago ish.
Robert Stein [00:22:14] We could be seeing Ron DeSantis versus Kamala Harris. We could see Ron DeSantis or Nikki Haley versus somebody else from the Democratic side, maybe Gretchen Whitmer.
David B. Armstrong, CFA [00:22:27] No strange names.
Robert Stein [00:22:28] No completely strange names. It depends. When you start this parallel universe.
David B. Armstrong, CFA [00:22:33] This is what happens with my thoughts.
Robert Stein [00:22:35] Can I give you a parallel universe?
David B. Armstrong, CFA [00:22:37] Oh, yeah. Please.
Robert Stein [00:22:37] This is an oddball one.
David B. Armstrong, CFA [00:22:39] But am I a millionaire gazillionaire? No, no, something totally different. Got it. Okay.
Robert Stein [00:22:43] Okay, so let’s say Mitt Romney beats President Obama back in 2012. Let’s say he wins. What happens after that? Here’s my theory. A billionaire businessman named Donald Trump challenges Hillary Clinton in the 2016 primary and beats her on the Democratic side. Challenges Mitt Romney as an aloof, out-of-touch, elitist, pro-choice. Donald Trump wins the presidency in 2016.
David B. Armstrong, CFA [00:23:17] Okay, that is a parallel universe that’s a great
Robert Stein [00:23:21] Protectionist but in keeping with where the Democrats had previously been, the Dick Gephardt Democrats would be welcoming of a protectionist, pro-choice billionaire businessman named Donald Trump. And he wins. And he conducts all his outrageous behavior. And the Republicans are mad that this guy is president, but he would be leaving the presidency this year. I don’t know who is running mate would be, but that’s a parallel universe that I sometimes think about.
David B. Armstrong, CFA [00:23:47] That’s interesting.
Jessica L. Gibbs, CFP® [00:23:48] All right. I want to switch gears a little bit. So this is probably just the pessimist in me. But when I listen to stump speeches, I usually just assume that a lot of the policy ideas a candidate is putting forward won’t actually come to fruition.
Robert Stein [00:24:01] That’s probably right.
Jessica L. Gibbs, CFP® [00:24:02] Okay. When you listen to Harris and you listen to Trump, are there any policies that they are supporting that you think are realistic?
Robert Stein [00:24:11] On the Harris side, she’s talking about some sort of favoritism toward tip income. Basically, Harris and Trump are both going after Nevadas electoral votes because there’s no state in the union I don’t think that has tip income relative to regular income. I said in Nevada, a lot of us blackjack dealers and dealers, for other games and all that stuff. So it’s a play for their votes. So I could see that happening. Some sort of tax relief on the tip side. I think that Harris is a little bit on to something in terms of some national tax or other policy favoritism toward home building in the years ahead. We’re building way too few homes in the USA. Now, the big problem really is on the local and state government side. With all these land use regulations, whether they are environmental or historic preservation or whatever other excuses that the incumbent homeowners want to use to prevent development so that their home prices stay high. And this is true all around the country, more so in blue states and democratic states and blue areas within red states. But even in red areas, you have some land use regulations that stymie and prevent some construction. Maybe the federal government, which really can’t override those local rules very easily, should get involved by giving some sort of tax preference to home builders and to get them to construct more units. Because in the end, we need more housing units in the USA. We should be starting about 1.5 million homes per year. And that’s even before we had a surge in immigration. With all the surge in immigration, we should probably be building around 2 million homes per year like back in the 1980s and parts of the 1990s. We’re nowhere close. We’re like 1.3, 1.35 or languishing at very low levels. So maybe it’s a good idea to have the federal government step in and create an offsetting incentive to kind of supersede the obstacles that are being set up at the local and state level. That seems to be something that a lot of the people at those state and local levels want. They’re bad policies, but people want them because it drives up the value of the real estate they already own.
David B. Armstrong, CFA [00:26:22] How come neither candidates talking about that?
Robert Stein [00:26:24] It’s not really a sexy issue. Harris has brought that up, and I don’t necessarily think I’ll agree with the policies in a vacuum that she proposes. But in the context of where the US right now is with housing construction, it might not be bad. In terms of the Republican side there’s been some talk on in terms of the tariffs almost certainly going up if Donald Trump gets elected. I think he’ll slap a much higher tariff on China, the 10% across the board tariff. There’s some legal issues with that. There is the authority of the president to go country by country and increase tariffs, and to do a 10% across the board tariff on every country. That’s legally ambiguous from what I’ve seen. And so that might be challenged in court, and I’m not sure which way the court would go. That’s a possibility. He has talked about something called impoundment, which pretty much nobody knows about. And the reason for that is if it hasn’t happened in 50 years. So pretty much every president dating back to Thomas Jefferson, I don’t think Washington or Adams did it. But Thomas Jefferson impounded funds. So Congress passed a law. He signed it, and then it became an obsolete project for whatever reason. So he impounded the funds and said, well, I’m not going to spend them. And many presidents after that would periodically impound funds. Congress to pass a law. He would sign it. He would respect the power of the purse. He would recognize that Congress handed him a purse with money in it, but he wouldn’t spend all the money. He’d impound some of the funds and keep them at the Treasury Department, where they would reduce the national debt or whatever. LBJ did it more in the 60s, and then Nixon did it even more in 69, 70 or 74, but then weakened by Watergate. He signed something called the Budget Control and Impoundment Act to never control the federal budget, but did, at least superficially, claim to strip both he and all future presidents of the in power to impound funds. But Donald Trump is not shy of a courtroom, obviously, so he might challenge that. I’m not sure which way the court would go, but it’s plausible. They may say that, in fact, the president does have the power of impoundment. Passing a simple law cannot strip a president, or any president or any future president of the power to impound funds. It’s been there all along. Kind of like Dorothy in the golden slippers or whatever. If that happens, Donald Trump and all future presidents will have this power of immpoundment save a lot of money. Is it gonna balanced budget? Not even close. The deficit this year will be 1.8 to $1.9 trillion. They could use it to save tens of billions of dollars a year. If they’re aggressive, maybe even hundreds of billions of dollars a year. They could repurpose the money, but they could save it and just refuse to spend it. And that would slow the growth of the debt in the future, the more manageable levels.
Jessica L. Gibbs, CFP® [00:29:06] Are there any policy ideas that the presidential candidates are putting forward that you think, if it’s enacted, would be potentially harmful to the economy or the regular American? [10.4s]
Robert Stein [00:29:16] I think the possibility of this happening is extraordinarily low. If Harris’s price controls went through, it would be an absolute disaster for the U.S. economy. That would be a major reason to sell stocks, because having a group of bureaucrats in Washington, D.C., figuring out when prices are out of line with what the fair price should be, it’s just absurd. I mean, it’s a command and control economy. I’m not saying we become Venezuela. It’s the kind of thing that policymakers in Venezuela would try, and it’s been disastrous there. It’d be disastrous here as well. This idea of raising the capital gains tax on the highest earners, or frankly, anyone to above 40%, that’d be an absolute disaster for the U.S. economy. It’s not going to happen. But if it did, it would be a complete disaster and I would be bailing out of stocks if I thought it was going to happen. [49.2s]
David B. Armstrong, CFA [00:30:07] Side question and I know the answer won’t really have any first order economic effects. Possibly second. But I have to ask the question if there is a Democrat White House and Democrat Senate or Republican white House and Republican Senate, any changes to the Supreme Court?
Robert Stein [00:30:27] In terms of reforms imposed on the Supreme Court?
David B. Armstrong, CFA [00:30:30] No, no. In terms of the the sitting justices, do you see any retirements and replacements? Do you see any of that taking place?
Robert Stein [00:30:36] Let’s say there’s a Democratic president and Senate. In that environment I think Sotomayor, will eventually step down during Harris’s time in office, her first two years. And the reason? Because they can re-up that seat for longer. That’s my best guess. Don’t take that to the bank, because a lot of people are calling on Sotomayor from the Democratic side to step down this year now so Biden could replace her. And she did it. The key for her is that this is all she has going on in her life is this job. That’s it. Getting her to step down is difficult because that’s all there is. It’s like Ruth Bader Ginsburg. Democrats were calling for her to step down, and she didn’t step down when President Obama was still in office. And then she couldn’t make it to Joe Biden’s time in office. I think there’d be a lot of pressure on my order to leave office. I don’t know whether she’ll be to respond. I don’t see any Republican leaving voluntarily during a Harris term in office. If the Republicans win, I think it’s very unlikely any Democratic appointed justice retires voluntarily. Very unlikely. The Republican side. I think if Trump wins and there’s a Republican Senate, there’ll be a lot of pressure on Clarence Thomas, who will at that point have been on the Supreme Court more than 30 years at this point. He’s been on more than 30 years to retire so they can re-up that seat. Who knows, maybe they give him a job in the administration as attorney general or something like that. Who knows? Probably not going to happen. I’m just speculating here. Because Trump wanted to be aggressive about firing all the lawyers he would love to be in charge. I mean, he was relish it. He’d probably skip to work every day just happy go lucky just to get a chance to go office to office and fire all the libs at the Justice Department. Kavanaugh and Barrett. They’re fresh. Roberts has been there not even 20 years. And he’s the chief, so I don’t think he’s leaving anytime soon. Alito might think about it. You check the actuarial tables because he’s a hard rock conservative. He’s a real hard rock, so he probably would stay. But I think there’d be a lot of conservative pressure on Thomas to leave. He’s been there more than 30 years already.
David B. Armstrong, CFA [00:32:47] If it’s split, do you see any reconciliation on actually replacing a justice? If there was a Ginsburg kind of thing? There was an immediate, unplanned opening. Involuntary. Any reconciliation being able to take place to put somebody I knew on the bench, I think just over.
Robert Stein [00:33:02] The likely majority leader for the Republicans would be John Thune, and he will pay any back door behind the scenes political price he has to pay to hold the Republican caucus together so that if there’s a Harris administration but a Republican Senate. I’m sorry, guys, but that’s it’s just not going to be replaced by President Harris. Ain’t going to happen.
David B. Armstrong, CFA [00:33:25] Same thing on the other side Trump or Democrat Senate.
Robert Stein [00:33:27] Yeah. Turnabout is fair play. Okay.
David B. Armstrong, CFA [00:33:29] So that’s where we are these days.
Robert Stein [00:33:31] That said, the likelihood of Trump getting elected. But there being a Democratic Senate, at least in the next two years, very low. Now the following two years much higher, which is why there would be pressure on Thomas to leave in 2025 or 2026.
David B. Armstrong, CFA [00:33:46] Well as we’re wrapping up, as Jessica mentioned before, this is your third time on the podcast and going to work on this name, but let’s call it Bob surprises segment of the wrap up here. But Basic math says if there’s a 90% chance of one thing happening, that leaves us a 10% chance of something else happening, and something can always happen. And I know you’re a poker player and I am not a poker historian, but I did happen to see an interesting YouTube video the other day of the 2008 World Series of Poker, where Justin Phillips was holding a royal flush, and his opponent, Moochie, is his last name, and I would slaughter his first name if I even tried. But he went all in. Here’s Justin holding this royal flush. Two aces are showing and he flips over two aces that he was holding in his hand for quad aces. Pretty low probability of beating a royal flush on that. But it happened. So in the context of the unexpected can always happen. What sort of interesting surprises? Low probability of course. That could be interesting coming out of November, that we could just spend a few minutes talking about. That could be interesting.
Robert Stein [00:34:47] I think there’s some possibility over the next few years, given how closely divided the Senate is, that we see a shift in power because somebody hits their sell by date afterwards. If there’s a 50 50 Senate or 51 49 Senate, you can have a shift of power because someone passes away and all the things that could happen politically from that changes in committee, changes in the prospects for major legislation or not. That’s something that might be a news event in 2025 or 2026. That’s unexpected at this point in time.
David B. Armstrong, CFA [00:35:21] That’s an interesting wrap up. Thanks. Appreciate it.
Jessica L. Gibbs, CFP® [00:35:23] Thank you, Bob, for taking the time to speak with us. And I’d also like to thank Marie McClughen from First Trust for connecting us with Bob. And thank you to you, our listeners, for joining us for this episode of Off the Wall, the podcast aimed at helping founders, executives and high net worth investors build wealth with purpose. If you like this podcast, the best way you can support us is to subscribe and share with a friend. It’s how we continue to grow and help more people, so we look forward to seeing you back here next time for our next episode.
