What a Democratic House Means for Investors
Aron Szapiro says we may see bipartisan legislation around the retirement system, but investors shouldn't overreact to House investigations of the president.
Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. After yesterday's election, the Democrats are set to take control of the House in January while the Republicans will increase their Senate majority. I'm here with Aron Szapiro. He's our director of policy research. We're going to talk about what could this mean for investors.
Aron, thanks for joining me.
Aron Szapiro: Thanks so much for having me.
Glaser: Now that we have divided government, is it safe to say that we're not going to see any big legislative changes? What do you think some of the priorities of House Democrats will be?
Szapiro: I think people don't need to turn to Morningstar to know there's going to be a big focus on investigations, not just of President Trump from the House Democrats, but also of his Cabinet and kind of the routine oversight that you expect in any situation where there's divided government. I don't think we're going too far out on a limb to say that's going to be a focus.
I think there might also be some interest in doing bipartisan legislation around making some tune-ups to the retirement system, making it easier for people to save for the future, so we'll certainly be looking for that as well.
Glaser: If investigations really do take center stage, is that something investors should be following closely? Is it going to have a big impact or is it really more of a political story?
Szapiro: Investors should be following it very closely in their role as citizens, but as they think about their investments, it would really be a mistake to overreact to any of the daily drips of information we get about the investigations.
Let's think back to when Robert Mueller was appointed special counsel. Markets went down in response to that news, and they quickly rebounded, and the reason is that there's just not that much day-to-day connection between investigations and the business of governing. A lot of the agencies that make policy that directly affect investors, like the Securities and Exchange Commission, are really quite independent and somewhat insulated from these kind of day-to-day machinations. I would say investors should stick to their strategy and not worry too much about the day-to-day information on investigations or the tweets back and forth or whatever else.
There are other sources of information that you can turn to and they all agree it's going to be perhaps pretty ugly politically, but I don't think that should change anybody's investment strategy.
Glaser: Let's talk about some of those policy proposals you mentioned. There could be some bipartisan work around retirement. What are some of those that are on your radar right now?
Szapiro: There's a couple of things that have had broad bipartisan support but haven't quite had the support to get through. One thing is letting small employers band together in order to offer a retirement plan and use their greater assets under management for leverage to get a better deal for their participants. This is an idea with bipartisan support, and I think if it doesn't happen in lame duck, one name you're going to hear a lot of in the next session is going to be Richard Neal. He's taking over as the chair of House Ways and Means, and that's the tax writing committee in the House. Of course most of the way we encourage retirement savings flows through the tax code, so he's very interested in these kind of ideas, so that's one thing.
Another kind of fine-tuning idea would be making it easier for people to access longevity protection inside their 401(k) plans. That's an idea with a lot of bipartisan support that just hasn't quite had a champion. I think we'll see likely some movement on some of these, again kind of fine-tuning ideas.
You know, speaking of Rep.r Neal, he's proposed much bigger overhauls to the retirement system, and I would expect to at least see those get some traction on the House side. Obviously they may not go through the Senate and become law, but I think you'll see some fine-tuning of those ideas. A big one for example would be an auto 401(k) bill that he proposed a couple of months ago that would essentially require many more employers to offer some kind of a 401(k). I think there's some issues there that need to be worked out to make sure that these new 401(k)s which wouldn't have as they are currently structured a match requirement, make sure they wouldn't cannibalize existing plans, but that's an important idea.
One thing that might not quite be on many investors' radars, but it occurred to me as the night was unfolding is, Democratic governors have been trying to expand access to retirement plans for people who don't have coverage at work with these auto IRA programs. Obviously we saw a bunch of Democrats pick up governorships last night, so I suspect we'll see some of those proposals emerging in new states as well.
Glaser: Looking at the Senate, does that larger Republican majority there open up any opportunities for legislation that maybe had been stymied there before or would you expect the status quo?
Szapiro: I don't think it makes a huge difference. It makes a big difference politically, of course, in going into the next election cycle, but in terms of legislation, the magic number in the Senate is really 40, where you kind of lose the ability to filibuster, and in a divided government situation, that's not even that important.
I actually think the most important thing we should look for in the Senate is who's going to take over Orrin Hatch's role as chairman of Senate Finance. There's sort of rumors there. I'll leave this to other websites, but once we know, we'll do some analysis on what his or her track record is and what kind of proposals we might see and how they would affect ordinary investors. That's a big change that's going to happen there, and that's sort of an important committee from the perspective if you're an ordinary person saving for retirement or other goals.
Glaser: Other than Senate Finance, what else are you going to be looking for in the next couple of months to get a sense of what we could see early next year?
Szapiro: It'll be really interesting in January where this first wave of bills from the committee chairmen come out, and we'll get a lot more clarity then. I think that the f range of possibilities is from again finetuning to fairly big proposals that may not make it through this session, but set the stage in the future.
I guess the other thing, everybody always has to mention infrastructure, everybody always says well, there could be a deal on infrastructure. We've been hearing that for some time, so I'm a little skeptical, but if there were a big infrastructure bill that was able to find purchase in the House and get through the Senate, that would first of all signal a much more bipartisan style of governing than I think is generally the common wisdom, and would probably provide a fairly meaningful short-term stimulus and long-term help for the economy. It's something to keep an eye on, but I don't think it's a hugely likely probability.
Glaser: Aron, thank you for your analysis this morning.
Szapiro: Thanks so much.
Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.