For investors, impeachment efforts could prove more problematic than the impeachment of President Clinton. This commentary very briefly outlines the reasons for the difference and the implications for tax policies that will affect investors.

Impeachment – The Process

The impeachment process represents the only legal way to remove a president. Article II Section 4 of the Constitution gives the basis for such removal: “the President, Vice President and all civil officers of the United States, shall be removed from office on impeachment for and conviction of, treason, bribery, or other high crimes and misdemeanors.” In its history, the United States never experienced an involuntary removal of a president.

Trump Impeachment and Conviction – The Chances

While a Democratic House could vote for impeachment, a two-thirds vote for conviction in the Senate does not seem likely. As a result, the President will likely remain in office and face reelection.

The Clinton Impeachment — the Political Difference

Assume the House impeaches the President but the Senate fails to convict. This outcome would prove similar to the impeachment and trial of President Clinton in late 1998 and early 1999. Serving his second term in office, constitutionally, President Clinton could not run for reelection. In comparison, only in his first term, President Trump can run for reelection. Assuming impeachment but not conviction, the outlook for the President’s reelection could be diminished.

Similarity with President Ford Running after the Nixon Resignation

The circumstances for Trump would seem somewhat similar to those faced by President Gerald Ford after the resignation of President Nixon. In that presidential election, President Ford, the unelected incumbent, lost to the Democratic candidate Jimmy Carter. In our view, Republicans may face a similar and challenging election campaign.

The Chances a Left-Wing Populist Replaces a Right-Wing Populist as President

With the apparent swing of the Democratic Party to the left, it could easily run a left-wing populist for president in 2020. If successful, ironically, a left-wing populist president would replace a populist of the right. This result would likely produce significant changes for both economic policies and therefore, financial markets. How severe would depend on whether the democrats controlled both the House and Senate as occurred during President Obama’s first two years in office.

Left-Wing Populist Changes – Higher Spending and Taxes

Let us speculate on possible changes a left-wing populist President and Congress could bring. In our view, such a swing might bring in major new spending programs — education and healthcare – resulting in even higher than the over one trillion-dollar deficit currently projected. To offset such increased spending, higher personal and corporate tax rates would likely result thus reversing Trump’s overall tax reductions.

Left-Wing Populist Changes — New Taxes

The increased deficits from new spending might also require entirely new sources of tax revenues. For example, a form of a value-added tax could be one new program. With left-wing populists focused on income and wealth inequalities, a second new source of government funding might even include a tax on wealth. At the same time, some influential liberal tech billionaires would likely fight such a proposal – in our view – successfully.

Investment Conclusions

A tax on wealth would likely force many wealthy investors to rethink their investment approach. For example, wealthy investors who principally focus on preserving capital might also think about how to “keep capital.” In countries where the security of capital proves to be at risk, many turn to purchasing physical gold and diamonds to “keep” their capital. In the new age, digital currency may prove to be another means to secure capital for “good keeping.”

We recognize the low probability of enacting a wealth tax in this country. Despite that, we gingerly touched on this subject simply to alert investors to the possibility of more drastic change if the left-wing populist forces gain more political power after the 2020 presidential election.