Pros and Cons of Legislative Inertia
While the 2020 presidential election gains steam, it seems that the passion for new legislation has taken a backseat. As of July 1, the Democrat-controlled House of Representatives had passed 169 bills this year1 while the Republican-dominated Senate had passed 61.2 Unfortunately, as of the same date, this divided impasse had produced only 24 enacted bills since the Jan. 1 start of the 116th Congressional session.3
For what it’s worth, the investment markets tend to prefer legislative gridlock in Washington, giving credence to the notion that no news is good news on Wall Street. As such, there are two useful tactics the average investor may wish to engage in during years when Congress is seemingly on a hiatus. The first is to analyze your portfolio to ensure it’s on track. It may make sense to make changes or rebalance during periods of low volatility.4
Second, if your assessment indicates that your current asset mix aligns with your financial objectives, consider letting it ride. One of the good things about lack of legislative activity out of Washington is that the markets mostly rely on investment fundamentals instead of higher-risk fiscal and monetary changes — so enjoy a relatively calm market while you can.5 As always, we are here to help you conduct a midyear review and make recommendations as necessary, based on your goals, risk tolerance and investment timeline.
While fiscal conditions are relatively positive for investors, the rest of the country may be frustrated by inaction among legislators. In fact, the political divide even takes a toll on some legislation that could be seen as bipartisan — for example, the recent push to authorize additional funding for the September 11th Victim Compensation Fund. Due to the rise in claims filed in latter years related to cancer diagnoses and deaths of Sept. 11 survivors, the original funding is reaching its end. In fact, payouts for new claims are being cut by as much as 70 percent as the fund approaches its December 2020 expiration date.6
By the same token, the Social Security fund is still projected to run out of reserve funds by 2035, at which point it is expected to pay out only 80 percent of the current level of benefits.7 While legislators have proposed a variety of solutions throughout the years,8 Congress continues to avoid this controversial legislation.
However, an additional tax on any income group can be just as controversial as cutting benefits, so it’s not likely the looming Social Security shortfall will be resolved in an election year, or even the year before an election year. And when you think about it, a newly elected (or re-elected) president is not likely to want to start off his new term with higher taxes or reduced benefits, so it’s possible this problem will not be addressed for several more years.
Content prepared by Kara Stefan Communications.
1 Govtrak.us. “Advanced Search for Legislation.” https://www.govtrack.us/congress/bills/browse#current_status=4. Accessed July 1, 2019.
2 Govtrak.us. “Advanced Search for Legislation.” https://www.govtrack.us/congress/bills/browse#current_status=5. Accessed July 1, 2019.
3 Govtrak.us. “Advanced Search for Legislation.” https://www.govtrack.us/congress/bills/browse#current_status=28. Accessed July 1, 2019.
4 Financial Post. June 3, 2019. “Politics can drive markets – but not like most expect.” https://business.financialpost.com/sponsored/fisher-investments/politics-can-drive-markets-but-not-like-most-expect. Accessed June 17, 2019.
6 Shannon Van Sant. NPR. Feb. 16, 2019. “Sept. 11 Victim Compensation Fund Cuts Payouts By As Much As 70 Percent.” https://www.npr.org/2019/02/16/695481252/9-11-victims-compensation-fund-cuts-payouts-by-as-much-as-70-percent. Accessed June 17, 2019.
7 Lorie Konish. CNBC. June 11, 2019. “Turns out it’s not baby boomers who have taken the most from Social Security.” https://www.cnbc.com/2019/06/10/its-not-baby-boomers-who-have-taken-the-most-from-social-security.html. Accessed June 17, 2019.
8 Social Security Administration. “Proposals to change Social Security.” https://www.ssa.gov/OACT/solvency/index.html. Accessed June 17, 2019.
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