Advisers weigh in on Trump's challengers

Most still support the president and are wary of Democratic tax plans that would target the wealthy, but some also find fault with the commander-in-chief

Nov 30, 2019 @ 6:00 am

By Mark Schoeff Jr.

Most financial advisers don't have billionaire clients. But that doesn't mean they don't have strong opinions about a wealth tax and other levies espoused by Democratic presidential candidates.

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Sens. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt., have targeted the ultrawealthy as a source of revenue to support expansive health care, education and other proposals.

It's given advisers a reason to follow politics closely as the first of the presidential primaries, early next year, looms. They're finding it difficult to avoid political conversations with clients, which means that the developments on the campaign trail have become top of mind.

"If you turn on the big news today, it's 50% politics," said Kyle Jackson, senior wealth manager at Jackson Wealth Advisors in Ada, Okla. "I'm talking about it more than I want to."

Advisers are generally wary of the theme emerging in the Democratic presidential race of bringing the wealthy down a peg. But they also cite qualms about President Donald J. Trump.

Many advisers caution that the Democrats' focus on raising revenue from the wealthy to pay for big social programs is misguided.

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"It's hard for me to imagine that a wealth tax won't slow the economy," said Michael Farr, chief executive of Farr Miller & Washington, a registered investment advisory firm in Washington. "Each [Democratic hopeful] so far has offered an economic agenda that would impede U.S. economic growth."

Focus on rich unfair

Adam Van Wie, chief operating officer at Van Wie Financial in Jacksonville Beach, Fla., said the Democrats' focus on high-net-worth individuals is unfair.

"The popular individuals that are not [former vice president] Joe Biden don't seem to be friendly toward people who have large incomes and have accumulated wealth," Mr. Van Wie said. "I don't think you should be punished for being successful in the United States."

Diahann Lassus gives the Democratic presidential contestants credit for "trying to look at new ways to solve old problems." But she also opposes a levy on wealth.

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"The whole idea of taxing wealth bothers me, even for billionaires," said Ms. Lassus, president of Lassus Wherley, a subsidiary of Peapack-Gladstone Bank in New Providence, N.J. "Going back to a more progressive income tax that taxes the super billionaires at a higher rate might be a better alternative than something like a pure wealth tax."

Mr. Jackson said Democrats are getting the "balancing act" of taxation wrong.

"You have to tax [the wealthy] enough so that they're paying their fair share of taxes," Mr. Jackson said. "But you [can't] tax them so hard that they stop investing capital."

Ms. Warren would impose a 2% tax on wealth above $50 million that rises as wealth crosses the $1 billion threshold to help fund her $20.5 trillion Medicare for All proposal. Mr. Sanders also supports Medicare for All and would levy a 1% tax on wealth above $32 million, for married couples, that rises to 8% for wealth over $10 billion.

Not all advisers are spooked by those ideas. One sees them as a way to address another problem — income disparity.

"If you look at history, when there's significant income inequality, that's when you have social unrest," said Carolyn McClanahan, founder of Life Planning Partners in Jacksonville, Fla. "Billionaires aren't going to give up their billions readily, so it will take tax policy to reduce income inequality."

Ms. Warren also backs a financial transactions tax, an idea that doesn't sit well with advisers.

[More: Elizabeth Warren health care plan sparks outcry over 401(k) tax hike]

It would have an impact far beyond high-frequency traders, said Leon LaBrecque, chief growth officer at Sequoia Financial Group in Troy, Mich.

The majority of wealth held by middle-income Americans is tied up in their 401(k) and individual retirement accounts, Mr. LaBrecque said. When they buy and sell mutual funds and other investments for their retirement nest egg, they will be paying a transaction tax.

"It's reducing the value of any retirement account," he said.

Another of Ms. Warren's ideas is to reform capital gains taxation so that the taxes would be collected annually rather than at the point of a sale of an asset or securities.

That could have negative implications for clients of Justin Brownlee, who own much stock in their employers, such as the oil companies Exxon, Chevron and Shell.

No immediate change

The legislative process ensures that tax policy wouldn't change immediately in a Warren administration. But Mr. Brownlee, owner of Brownlee Wealth Management in Woodlands, Texas, said it makes sense to consider, now, how to respond.

"For taxes, politics matter," Mr. Brownlee said. "If it looks like [capital gains changes are] going to happen, at least we would have a couple years to plan for it. We need to be really strategic to sell down those concentrated stock positions."

Many advisers lament what they see as the Democratic primary candidates appealing to the far left to try to win the presidential nomination.

"There's not a lot of moderation going on in the Democratic debates," said Mark Meredith, founder of Meredith Wealth Planning in Maryville, Ill. "Everyone's becoming more extreme to get more attention."

Mr. Biden doesn't talk about a wealth tax. But he would restore a top tax rate of 39.6% and would impose that rate as the capital gains tax for people making more than $1 million annually. He does not espouse Medicare for All but rather would build on the Obama administration's Affordable Care Act.

"He's a good voice of reason," Ms. Lassus said. "He tends to be more moderate, and that's one of the things people like about him."

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There's not much drama on the Republican side of the presidential race in terms of who the nominee will be. Many advisers give Mr. Trump credit for a strong economy but they're not giving him a full-throated endorsement.

strong economic record

"There are many things I disagree with the president on," Mr. Van Wie said. "But arguing with the track record he has on the economy is difficult to do."

Ms. McClanahan does not give Mr. Trump credit for economic growth.

"It's not the president who runs the economy," she said. "We had a great economy during the Obama administration."

Advisers level criticism at Mr. Trump and congressional Republicans and Democrats for presiding over a federal deficit that is expected to top $1 trillion next year.

"The deficit spending that has occurred under this administration I think will catch up with us and become a significant problem in time," Mr. Farr said. "There is no sign of curtailing spending by either party."

Mr. LaBrecque said Democrats haven't been fiscally prudent, and Republicans have been worse.

"Republicans got in and said, 'Watch, we can spend more money,'" he said. "Our deficit is now bigger than our debt used to be."

[More: Billionaires could see tax rates as high as 97.5% under Sanders]

Republicans are bereft of ideas when it comes to health care reform, said Brian Jones, a financial planner at NextGen Financial Advice in Burnsville, Minn. He has had extensive experience with the U.S. health care system because he has two children with autism.

"I don't believe [Republicans] actually have a plan," Mr. Jones said. "They believe the free market will just fix it all, but health care is a market failure."

Mr. Jones is more open to a wealth tax than other advisers because it would fund an expansion of health care coverage.

"It's not going to affect those people's lives that much but there is a significant social good for every citizen to be able to get health care," he said. "Ideally, health care should be a right."

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Health care also is the top priority for Ms. McClanahan, a physician, but she said it is not being framed correctly because there's too much focus on how to pay for reform instead of what reform will look like.

"Politicians are not talking about how to fix the health care system, which would fix the high cost," she said. "When you have that big divide, and you can't get the country to agree on a health care system, we're going to stay dysfunctional."

Although some advisers embrace particular ideas and policy prescriptions that have emerged in the Democratic presidential primary, there's still a worry that the race is being run too far to the left.

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"I don't think the politics of socialism works," Mr. Jackson said. "Capitalism is the key to pushing the economy forward. The stock market is based on capitalism."

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