LAFFER ASSOCIATES

Supply-Side Investment Research

10-yr T-Note: 1.81%

DJIA: 17,930.67

NASDAQ: 5,058.41

November 3, 2016
S&P 500: 2,088.66

S&P 500 Undervalued: 142.6%

January xx, 2003

WHAT IF TRUMP WINS?

By Stephen Moore1
Summary

January xx, 2002xx

Republicans not only hold majorities, but in some categories, political dominance in the states. A Trump victory
spells Armageddon for Democrats, as Republicans would hold all Seven Positions of Political Power.

If Trump wins, the GOP will be redefined in a significant way over the coming years and may look more populist,
meaning the free trade and open immigration policies embraced by the GOP may be in jeopardy. If Trump loses, it
could mean civil war for the GOP, as it is hard to see how the Bush-Romney establishment wing of the party could
continue to coexist with the Tea Party/Trump faction.

With a Trump victory, expect an aggressive first 100 days agenda, which includes a business tax rate cut, significant
roll back of Obamacare, executive orders allowing more oil and gas drilling and more coal mining. And, of course,
the wall will be builtbut we will see how much, if any of it, will be paid for by Mexico.
Just a little over a week ago, Democrats were all but uncorking the champagne bottles over their certain third straight
presidential victory. Hillary was measuring the curtains in the White House and naming her cabinet. They were celebrating
four or even eight more years of Democratic dominance of the executive branch of government. Today, the presidential race
is within the margin of polling error and liberals are in a full-scale panic. Wouldn't you love to be a fly on the wall in Clinton
headquarters right about now?
I still give Hillary about a 60 percent chance of winning, especially with her Electoral College advantage (Trump needs to win
nearly all of the close states), but there is definite momentum shift and a clear path to 270 electoral votes for Trump.
What havent been reported on are the political implications of Trump winning. A Trump victory means all of the "Seven
Positions of Political Power," as Arthur Laffer calls them,2 will be controlled by Republicans in a way none of us have seen in
our lifetimes. What many political observers and the "never Trump" Republicans don't fully appreciate is that if Trump wins
the White House, for the first time in any of our lives, Republicans will control every major position of political power in
government. These seven pillars are:

The Presidency
The Senate
The House
State Governors
State Legislatures
Justices of the U.S. Supreme Court
Chairman of the Federal Reserve

And because a Hillary Clinton defeat is also a voter repudiation of Obama policies, the GOP will be empowered to erase
much of President Obama's legacy of liberal governance, including his "signature" achievements: Obamacare, the Iran Deal,
his income redistributive tax increases, and the radical green agenda that has decimated our domestic coal industry. If
Trump wins, the energy sector is a massive winner. Just look at the negative impact President Obamas policies have had on
the coal sector. Trump is a big climate change skeptic, and we could see a comeback of King Coal if Trump wins.
The not so good news is that Trump may well renegotiate trade deals such as NAFTA, and that could harm a number of
areas of the economy.

Stephen Moore is a dear friend as well as an economic consultant with Freedom Works and a senior economic adviser to the Donald Trump
campaign.
2 For more on these seven positions of political power, see: Arthur B. Laffer, The Seven Wonders of Political Power, Revisited, Laffer Associates,
January 7, 2014.

103 Murphy Court, Nashville, TN 37203 (615) 460-0100 FAX (615) 460-0102

Laffer Associates

What if Trump Wins?

The Table Is Set

To see how this GOP dominance is possible, consider that Republicans are already in a commanding governing position
across the country. The scoreboard below shows that Republicans not only hold majorities, but in some categories, political
dominance in the states (Table 1). A Trump victory spells Armageddon for Democrats.
Table 1

GOP Dominance
(as of October 2016)

Republicans

Democrats

House Seats

247

188

Senate Seats

54

46*

Governorships**

31

18

State Legislative Chambers^

67

31

* Senators Sanders (VT) and King (ME) are Independents, but always vote and
caucus with Democrats. Thus, we count them as Democrats in this total.
** Governor Bill Walker (AK) is an Independent and not included in these tallies.
^ Nebraska has a unicameral nonpartisan legislature and is not included in
these tallies.

Source: U.S. House, U.S. Senate, National

Conference of State Legislatures

The presidency is by far the most powerful perch in American government. What isn't fully appreciated is that, right now, the
presidency and Federal Reserve are just about ALL the Democrats control. A recent analysis by Stuart Sweet, a friend of
ours, political watcher and editor of the financial newsletter Capitol Analysts Network put it well in a recent missive:
"Democrats Face Disaster if Clinton Loses." He's right, and that is why the left is fighting to the death to defeat Trump.
A Trump victory at the top of the ticket means that Republicans are not only likely to retain their leads at the state level and in
Congress but possibly even expand them. I'm hearing from my state contacts that Trump's late surge in the polls looks to be
having positive ramifications for down-ticket GOP candidates. Conversely, if Trump stalls out, this almost certainly means
major losses of seats in state legislatures and the U.S. Senate flipping to the Democrats.
But there is more than the legislative branch at stake; everyone knows that the Supreme Court ideological control hangs in
the balance. A Trump win could very well tip the balance of the Court in a conservative direction, not just for four or eight
years but for potentially a generation. Legislative victories for conservatives will require a Court that is philosophically in line
with new laws. Table 2 below shows the age of the current justices.
Table 2

Current Supreme Court Justices

Justice
Vacant (Antonin Scalia)

Anthony Kennedy
Clarence Thomas
Ruth Bader Ginsburg
Stephen Breyer
John G. Roberts
Samuel A. Alito, Jr.
Sonia Sotomayor
Elena Kagan

Date of Birth/Age
3/11/1936
Died: 2/13/2016
Age: 79
7/23/1936
Age: 80
6/23/1948
Age: 68
3/15/1933
Age: 83
8/15/1938
Age: 78
1/27/1955
Age: 61
4/1/1950
Age: 66
6/25/1954
Age: 62
4/28/1960
Age: 56

Appointed By

Sworn In

Ronald Reagan

9/26/1986
Served: 29yr 4mo

Ronald Reagan
George H.W. Bush
Bill Clinton
Bill Clinton
George W. Bush
George W. Bush
Barack Obama
Barack Obama

2/18/1988
Served: 28yr 8mo
10/23/1991
Served: 25yr 0mo
8/19/1993
Served: 23yr 2mo
8/3/1994
Served: 22yr 2mo
9/29/2005
Served: 11yr 1 mo
1/31/2006
Served: 10yr 9mo
8/8/2009
Served: 7yr 2mo
8/7/2010
Served: 6yr 2mo
Source: The Green Papers

Laffer Associates

What if Trump Wins?

If Hillary wins, we get three more Sotomayors. If Trump wins, we get Scalia-type jurists. The Trump Supreme Court list
published a few months ago is stocked with talent.3
Then there are the regulators. Under President Obama, the regulatory assault has been on overdrive at the EPA, FDA,
NLRB, IRS and many of the other alphabet soup of agencies. A President Trump will be empowered to appoint new
directors of each of these bureaus, and Republicans would thus take over de facto voting control of the 4th branch of
government that has been a silent killer of jobs and economic growth.
President Obama is on track to release more new pages of government regulations in 2016 than any President EVER has
before. The previous record holder? Barack Obama in 2010.
Shift the anti-business bias of these agencies, and the economy could surge. It is instructive to look at what happened to
pages of the Federal Register when Reagan took over from Carter (Figure 1). Rulemaking was dramatically slowed, and I
expect that would happen under Trump too.
Figure 1

Pages in the CCH Standard Federal Tax Reporter vs. Annual Pages in the Federal Register4
(annual, 1950-2014)

100,000

Obama

Bush

Clinton

H.W. Bush

Reagan

Carter

Ford

Nixon

Johnson
Kennedy

80,000

Eisenhower

90,000

Truman

100,000

90,000
80,000

70,000

70,000

60,000

60,000

50,000

50,000

40,000

40,000

30,000

30,000

20,000

20,000

Federal Register
Tax Reporter

10,000

10,000
0

2015

2010

2005

2000

1995

1990

1985

1980

1975

1970

1965

1960

1955

1950

Source: CCH, Office of the Federal Register

As former Heritage Foundation president and member of the Trump transition team Ed Feulner has put it so well, "People
are policy. Get the right people and good policy outcomes will follow."
Under a President Trump, look for more decision-making to be devolved back to the states. If that happens, conservative
governors and state legislators could make major changes in transportation, education, welfare, and health care policy. Also
more delegation to the states would benefit red states over blue states. Figure 2 on the next page shows the current
legislative control in the state capitols.

Donald J. Trump Finalizes List of Potential Supreme Court Justice Picks, September 23, 2016.
https://www.donaldjtrump.com/press-releases/donald-j.-trump-adds-to-list-of-potential-supreme-court-justice-picks
4 The Federal Register is a publication that records new regulations that become law in a given year. If, for example the Federal Register is 80,000
pages in one year and 70,000 pages in the next year, this reduction of 10,000 pages doesnt represent a repeal of 10,00 0 pages of regulations, but
rather shows a slowing in the rate of addition of pages of regulation.
3

Laffer Associates

What if Trump Wins?

Figure 2

Partisan Control of Legislatures as of October 2016

ME
WA
VT
MT

ND

MN

NH

OR
ID

CT

SD

MI

WY

RI

PA
IA

NJ
OH

NE*
IL

NV

DE
MD

IN
WV

UT
CO

CA

MA

NY

WI

KS

VA

KY

MO

NC
TN

AZ

OK
NM

SC

AR
MS

TX

AL

GA

LA

FL

AK

R Control of Both Chambers

HI

D Control of Both Chambers

Split Control of Chambers
* Nebraska has a unicameral nonpartisan legislature

Source: National Conference of State Legislatures

One other position of enormous power in Washington is controlled by the Democrats: the Federal Reserve Board. Janet
Yellen may not be partisan in her monetary policy dictates, but she is an old-school Keynesian Democrat who supports the
easy money economic philosophy that has given us the weakest recovery in 75 years. With a Trump win, she too will be
replaced when her term is up, and perhaps we will finally get rules-based monetary policy.
The Tax Cut
The heart of the Trump economic plan is its business tax rate cut. The plan reduces business tax rates to 15 percent from
35 percent on corporations and to 15 percent from a high of 40 percent for small business income. The highest individual
income tax rate would fall to 33 percent from todays almost 40 percent, though deductions would be capped at $100,000 for
high income earners. As the Trump plan relates to financial markets, his tax cut would in some cases markedly raise aftertax rates of returns on equities and push stock prices up, as was the case of the Reagan and (Bill) Clinton capital gains tax
rate cuts.
Figure 3 on the next page compares the Trump rates and the current tax code with Hillary Clintons the tax proposal, who
proposes higher rates almost across the board.

Laffer Associates

What if Trump Wins?

Figure 3

Tax Rate Plans: Clinton vs. Trump vs. Status Quo

33.0%

Personal Income Tax

39.6%
43.6%

20.0%
23.8%

Capital Gains Tax*

47.4%

15.0%

Small Business Tax**

39.6%
43.6%

Donald Trump
Current Rate

15.0%

Corporate Tax

35.0%
35.0%

Hillary Clinton

20.0%
40.0%

Estate Tax^

65.0%

0%

10%

20%

30%

40%

50%

60%

70%

* Clinton's Plan would create seven new brackets for capital gains and impose a 47.4% rate on capital gains held for
less than 2 years
** Trump's Plan would apply a lowered corporate tax rate to both large and small business income, whereas under
Clinton's Plan, small business income would be taxed as it is currently as ordinary income and subject to the highest
marginal tax rate of 43.6%.
^ Trump's Plan would eliminate the estate tax, but would impose a capital gains tax on any unrealized gains over $10
million held at death, subject to Trump's 20% capital gains tax rate.

Sources: Hillary Clinton Tax Plan, Tax Foundation, Trump Tax Plan, Wall Street Journal

As one of the authors (with Larry Kudlow and others) of the Trump tax plan, my prediction is that the Trump business tax
plan can be passed in the first 100 days. The Trump tax plan closely resembles the Paul Ryan/Kevin Brady tax plan in the
House. Once passed, I would expect a business tax rate of 20-25 percent with 10 percent deemed repatriation, border
adjustability, and an end to green energy subsidies. Trumps proposed personal income tax rate changes are more
politically controversial, and they could have to wait for a second tax bill.
The Political Fallout
There may be one more salutary effect of a Trump win, which is to force Democrats, a party which will have hit rock bottom,
to reconsider the wisdom of the leftwing takeover of their party over the past decade. Perhaps we will see the reemergence
of the long-dormant centrist wing of the Democratic Party, which would be a very positive development for the country. We
hope the party doesn't move further to the left and into the hands of the socialistic Bernie Sanders and Elizabeth Warren,
though that is certainly a very realistic possibility. I predict that Elizabeth Warren becomes the queen of the Democratic
Party if Trump wins.
If Hillary Clinton loses, even liberals should applaud the renunciation by the voters of cronyism and corruption and a return to
"good government" idealsa government that serves the people, not the political insiders. Liberals seem to be arguing to
their voters: sure Hillary is corrupt, dishonest, and reckless, but she's the only thing that is preventing the demagogic,
nativist, and racist Donald Trump from taking over. That is some rallying cry.
Finally, a Trump win will put Republicans to the ultimate test as to whether they have the courage of their convictions. With
effective one-party rule, they won't have Nancy Pelosi or any other Democratic obstructionist to blame if they don't deliver on
their policy promises of government reform and pro-growth economics. A Trump victory will signify a leap of faith by voters
in the GOP one more time, and Republicans will quickly become the out-of-power party if voters come to believe that faith
was misplaced.
If Trump wins, the GOP will be redefined in a significant way over the coming years. A party that was transitioned into a
Conservative party under Reagan will look more like a populist America First party under Trump. This will have both positive
and negative consequences for investors. The free trade and open immigration policies embraced by the GOP may be in
jeopardy. The neoconservative wing of the Republican Party will be the big loser and tossed aside on foreign policy.

Laffer Associates

What if Trump Wins?

If Trump loses, all hell could break loose, resulting in a GOP civil war. In that case, I see a potential crack up of the party,
and it is hard to see how the Bush/Romney establishment wing of the party could continue to coexist with the Tea
Party/Trump faction. But that is a subject for another piece.

2016 Laffer Associates. All rights reserved.

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