Editor’s Note: From now until the election, senior research analysts Tony Sagami and Sean Brodrick are looking closely at what a Mitt Romney presidential win vs. a Barack Obama re-election would mean for investors.
They are combing through the respective candidates’ promises and policies, as well as the sectors that have historically responded best in the past under each party, to uncover opportunities that can start springing to life long before Inauguration Day.
That’s because, no matter how you vote, one of these men is going to win this election. The polls are showing us that both stand an equally good chance of entering — or staying in — office come Nov. 6.
And to help you get positioned for the massive — and unprecedented — profit opportunities ahead either way, last week Tony shared “4 Predictions for a Romney Victory” and Sean gave “3 Reasons an Obama Re-Election Could Be Good for Stocks.”
Today Tony is giving you a closer look at something that affects every investor on the planet: Taxes. Specifically, he is looking at Romney’s tax plan and what effect it can have on the markets … and on you.
Plenty of people are trying to influence how you vote, from the politicians themselves to the TV talking heads, to anyone you meet who likes their candidate — or, in many cases, simply dislikes the other candidate.
Frankly, I’m more concerned with what happens starting on Nov. 7 than about Election Day itself. That’s because there will be big opportunities for investors … not just in spite of, but actually because of, who wins.
As we started discussing last week, the election is still anybody’s game, and here at Uncommon Wisdom Daily, my colleague Sean Brodrick and I are uncovering the best ways to help you to prepare for either outcome.
After the first presidential debate, Republican nominee Mitt Romney has had a slight lead or has been tied with the president in the polls, per Rasmussen Reports’ Presidential Tracking Poll, for nine out of the past 10 days. For the 16 days prior, President Barack Obama had been in the lead or tied with Romney in the same poll.
In other words, the competition is in a dead-heat going into tonight’s town-hall meeting, where the candidates will hash it out over foreign and domestic policy. In the meantime, let’s zoom out and look at one crucial domestic factor can have a huge impact on the broader markets: Taxes.
Looking out for the next big opportunity to make money is only half the battle. How much can you expect to keep could look very different if a new president takes the reins.
5 Tax-Policy Promises if Romney Takes the Reins
Campaign promises are broken more than they are kept. This universal caveat aside, the basics of the Romney platform are pretty clear, and they appear to be friendly toward corporate America, business owners and, in turn, individual investors.
Here’s a closer look at Romney’s tax-policy pledges, and how they could rejuvenate our economy and send the stock market to new highs.
1. Reduce the Corporate Income Tax Rate to 25%.
I listed this first because I believe it will have the most impact on rejuvenating our economy. The current top corporate tax bracket in the U.S. is 35.6% but Romney has pledged to reduce that to 25%.
A new study by the Cato Institute showed that the United States has the fourth-highest corporate tax rate in the world. A 35.6% tax rate “is almost twice the average rate for the 90 countries studied, and it is also the highest rate among the major industrial nations,” the study said.
That is a costly burden and why, according to Ernst and Young, a large number of U.S. companies are relocating overseas. Ernst and Young found that 46 out of the Fortune 500 companies have relocated their headquarters out of the U.S. since 2000!
Lowering the corporate tax rate could potentially do more to stimulate growth and create jobs than all the other campaign promises combined.
2. Lower Income Tax Rates by 20%.
Romney wants to cut taxes across the board, for ALL Americans, by 20%. Democrats have demonized the tax cuts as a boondoggle for the very rich, but there is a gigantic difference between tax rates and tax revenues.
Sure, Romney wants to lower the tax rate. But he wants to keep tax revenues roughly the same by eliminating deductions and exemptions for upper-income Americans.
Not only would this make our insanely complex tax code simpler, it would increase the financial incentives to invest, build and save while preserving the amount of income tax revenues our government receives.
3. Maintain Current Tax Rates on Dividends and Capital Gains.
Capital gains and dividends are currently taxed at a lower rate than wage income. That’s nothing new, nor an evil “loophole” for the rich.
Our tax code is structured in a way to encourage savings and investment. This is why capital gains and dividends have always received preferential tax treatment. Only recently has national tax policy been described as a tax break for “millionaires and billionaires.”
If the tax rate on dividends is increased, it would increase the borrowing costs for American businesses. Do you think that traditional dividend-payers, like electric and water utilities, will have to pay more or less if the dividend tax rates goes up from the current 15% to the Obama-proposed 43.6% tax rate?
Additionally, neither the mass media nor Romney critics talk about Romney’s proposal to completely eliminate taxes on interest, dividends and capital gains for taxpayers with adjusted gross income below $200,000. Without question, that’s a tax break for the middle class.
4. Axe the Estate Tax.
If you are a successful saver, the government wants half your money when you die. Right now, the top estate-tax rate is 35%, but it’s set to increase to 55% in 2013.
My father was a farmer and at one time owned quite a bit of valuable land. He, like lots of our farmer neighbors, may have looked successful on paper. But we always felt poor because my father had a very low income and owned almost nothing other than the dirt that he worked on each day.
A lot of other farmers and business owners are in the same boat and many of their heirs are forced to liquidate their family businesses in order to pay estate tax … on assets bought with post-tax dollars. Estate-tax reform could encourage more smaller businesses to form and to stay in business for more than just a generation.
5. Repatriation Tax Holiday.
Companies that earn money outside the U.S. have to not only pay taxes to the foreign country where those profits are made, but also have to pay tax AGAIN when they bring those profits back to the States.
The current tax code does NOT tax those foreign profits as long as they stay overseas. However, for those dollars that are brought back to the U.S., they can be taxed up to 35%. That is why Americans businesses are leaving those dollars overseas.
For example, Apple (AAPL) has $117 billion worth of cash sitting in the bank, but a whopping $74 billion of that is overseas! A tax holiday that allowed companies like Apple to bring those dollars back into the U.S. could inject trillions of dollars into our economy and, in turn, lead to growth and jobs.
This column might generate some strident comments from Romney critics. But my goal is to show you the potential impacts for investors and taxpayers in America — not to influence the way you vote.
Will Romney’s tax plan stimulate our economy, create jobs and give a huge boost to corporate profits as he predicts it will? Time will tell, but I do want to leave you with one statistic as it relates to how the markets could react.
In 1989, the year George H.W. Bush took office, the Dow Industrials soared by 23%. A similar move would translate into a 3,000-point jump today, and I believe that can be a realistic expectation for 2013 if Romney wins the election.
In fact, I’ve compiled a short list of companies whose profits (and stock prices) can potentially skyrocket under a Romney presidency. You won’t want to miss out on these 12 Romney Windfall Stocks — click here for all the details on how you can gain access to them!
Next week I plan to review Romney’s other growth pledges affecting regulation, health care, trade and energy. In the meantime, be sure to tune back in on Thursday, when Sean will share with you some opportunities he sees if Obama remains in office.
P.S. My colleague Sean and I have identified 13 Obama Profit Bonanzas and 12 Romney Windfall Stocks, so that you know exactly where to invest your wealth based on who’s in the White House for the next four years.
In the spirit of the election, we’ve made this into a competition of our own. We are each writing a report tailored to the respective candidates’ promises and policies. If Obama stays in office, you’ll get Sean’s report. And if Romney becomes No. 45, you’ll get my report.
This post-election profit guide is filled with a presidential-focused batch of potential money-doublers designed for either a Romney or an Obama win. You don’t need to wait till the elections are over — you’ll be covered either way when you reserve your copy today!