2016 U.S. Presidential election brief

© BRUNSWICK | 2016 | 1

2016 U.S. Presidential Election Brief

April 2016

2 | 2016 | BRUNSWICK ©

CandidatesIn the 2016 U.S. presidential primary, political outsiders are significantly influencing the policy positions of the Republican and Democratic parties on the issues that matter most to companies operating in the United States.

Donald Trump A prominent real estate mogul who has upended the Republican primary, thwarted the party establishment, and continues to dominate the news cycle with calls for immigration restrictions and the building of a wall along the U.S.-Mexico border, as well as with his harsh criticism of American companies that have moved manufacturing operations out of the U.S.

John Kasich A former U.S. congressman and current governor of Ohio who has won only his home state’s primary to date and severely lags behind Trump and Cruz in delegates, despite being viewed by many as more electable than either candidate in the general election.

Ted Cruz A Harvard-educated lawyer and U.S. senator from Texas campaigning as a strict constitutionalist who routinely castigates “the Washington cartel.” Due to this kind of rhetoric, he has made few friends in the Senate or the Republican Party.

Hillary Clinton A former secretary of state who is poised to be the first woman in American history to win the nomination of a major political party for president, but faces an enthusiasm gap with liberal “millennial” voters because of her perceived ties to Wall Street.

Bernie Sanders A 74-year-old democratic socialist and U.S. senator from Vermont who has captivated the young progressive wing of the Democratic Party with his unabashed support for universal healthcare, opposition to the Trans-Pacific Partnership, and stringent anti-Wall Street talking points.


Republican Party

State of PlayBoth parties hold nominating contests in each of the 50 states and territories to determine their respective nominees for president. Candidates compete for each state’s delegates, who, in turn, will be responsible for formally selecting a nominee during the Republican and Democratic National Conventions later this summer.

The rules governing how delegates are awarded vary for each party and also by state, thus the calculus—and state of play—for each candidate differs.

B etween February and June, each state (and territory) holds primaries or caucuses to determine the allocation of 2,472

delegates to the Republican National Convention, which will be held July 18–21 in Cleveland, Ohio. To receive the nomination, a candidate needs to receive the votes of a simple majority (1,237) of the delegates to the convention.

Currently, Donald Trump holds a significant lead in the delegate count. However, Mr. Trump still needs to win a number of primaries to get to 1,237. If he does not reach this number before the July convention, the convention will become “contested,” or “open.” This would entail the 2,472 delegates voting until a single candidate receives a majority of votes. Contested conventions are exceedingly rare in the modern era, and in the past have featured extensive deal-making and strategic back-channeling in order to swing votes to one candidate or another. If Mr. Trump fails to secure a majority of delegates before the convention, he could lose the nomination to a candidate who is better-versed in party politics and whose campaign has focused more intently on the delegate allocation processes.

Although he trails Mr. Trump in delegates by a significant margin and it is no longer mathematically possible for him to clinch the nomination before Cleveland, Senator Cruz remains a viable challenger. In the event of a contested convention, his appeal with core conservative voters and longtime criticism of

his Senate colleagues make him an attractive second-ballot option—particularly given his recent choice of former Hewlett-Packard CEO Carly Fiorina as his vice presidential candidate. It remains to be seen, however, whether a potential Cruz-Fiorina ticket will have sufficient crossover appeal to sway general election voters and prevail against likely Democratic nominee Secretary Clinton.

By contrast, Governor Kasich is the last standing Republican “establishment” candidate in the race. While he currently trails Mr. Trump and Senator Cruz heavily in delegates, if no candidate wins a majority prior to the convention, Governor Kasich hopes to position himself as the safest and most electable candidate left in the Republican field.

In the event of a contested convention in Cleveland, odds-makers should watch Republican National Committee Chairman Reince Priebus closely. A Wisconsin native, Chairman Priebus has chaired the Republican Party since 2011. He could very well find himself presiding over the first convention since 1976 in which no candidate has managed to garner a majority of available delegates prior to the convention being gaveled open. Due to the convention process and the tight-knit governing body of the Republican Party, Chairman Priebus would wield significant influence at a contested convention, where rules can be altered or stricken at will to make way for a compromise candidate.


L ike the Republican Party, the Democrats convene primaries and caucuses from February through June. Unlike the

Republican Party, Democratic delegates are awarded on a proportional basis—there are no winner-take-all states. To secure the nomination, a candidate needs the support of 2,383 out of 4,765 available delegates. This total includes 714 “superdelegates”—party leaders who are free to support the candidate of their choosing. The Democratic National Convention will be held in Philadelphia from July 25–28, 2016.

At the time of writing, Secretary Clinton is on track to win the nomination. Although Senator Sanders has mounted a passionate and vigorous campaign, he has been disadvantaged by the absence of winner-take-all primaries. Secretary Clinton now holds what is likely to be an insurmountable lead in the delegate contest—especially in the wake of her resounding April 19 victory over Senator Sanders in her home state of New York and her recent primary wins on April 26.

Yet despite the math being in her favor, Secretary Clinton has struggled to fully energize the Democratic base. Small-dollar donors have fueled Senator Sanders’ campaign for months now, and millennial voters favor his populist, anti-Wall Street message over what they see as Secretary Clinton’s more establishment approach.

In response to Senator Sanders, and in an effort to activate millennial voters in support of her campaign, Secretary Clinton has moved to the

left and recalibrated her message. Perhaps most notably, she reversed her position on the Trans-Pacific Partnership—a signature free trade deal championed by President Obama that she now vehemently opposes. She has also emerged as a vocal critic of corporate tax inversions and the American companies that have utilized them to secure tax savings by relocating their headquarters abroad. It is unclear, however, whether these leftward shifts will be enough to persuade young liberals to mobilize on her behalf come November.

If Secretary Clinton does clinch the nomination, Senator Sanders’ endorsement may prove crucial for motivating key blocs of voters—particularly those under the age of 30 and single women, both of which are an essential part of the Democrats’ strategy but have largely preferred Senator Sanders thus far—during the general election.

Even if Senator Sanders loses the nomination, he will still hold significant influence over the nomination process. He controls enough delegates to be a vocal presence at the convention and influence key party positions on issues such as trade, Wall Street reform, tax policy, and national security, though how the senator will leverage his newfound clout within the Democratic Party remains to be seen.

Democratic Party



Business-Critical IssuesThough much about this election is still far from settled, four policy arenas will assuredly impact how businesses operate—and their overall bottom lines—under a new commander-in-chief.

A signature initiative of the Obama administration, the now-controversial Trans-Pacific Partnership comprises 12 countries (U.S., Australia, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and Brunei Darussalam) and is meant to reduce trade

barriers among them by lowering tariffs on goods, coordinating regulations, and more. But despite Congress’s approval of fast track authority earlier this year, TPP may be in jeopardy. The treaty faces stiff opposition from both sides of the aisle as members increasingly face populist and protectionist sentiments back in their home districts.

Tellingly, Mr. Trump, Senator Cruz, Senator Sanders, and Secretary Clinton are now all on record opposing TPP in its current form, at least partially because they do not feel the deal adequately protects U.S. trade interests and that it could jeopardize the American economy in the face of slowing growth in global trade. Though all remaining candidates have expressed their opposition to the present formulation of TPP, it is possible that Congress will choose to vote on it during the lame duck session after the election. If Congress declines to vote on the agreement this year, the next president will have the opportunity to either scuttle TPP entirely or push to reopen negotiations with member countries in hopes of arriving at a new draft.

TPP

Inversions T ax reform—whether corporate, individual, or both—has long proven an intractable issue for Democrats and Republicans alike. Now American companies, at a disadvantage with foreign competitors, are increasingly seeking tax relief abroad. According to Bloomberg QuickTake,

more than 50 U.S. companies have completed an inversion since 1982, 20 of which have occurred since 2012 alone. While Democrats and Republicans are generally united in their opposition to corporate inversions, the Treasury Department’s recent regulations targeting inversions and earnings stripping could be a lightning rod for both parties in the general election—setting up a long-awaited debate about comprehensive tax reform and the right way forward.

Though Senators Clinton and Sanders have vocally opposed inversions on the campaign trail, Senator Cruz and Mr. Trump have all taken the more muted position that the practice will end only after the enactment of comprehensive tax reform that significantly lowers the corporate tax rate for American companies.


Energy Policy and Climate Change

E nergy policy in the U.S. has long been the subject of partisan debate, with activists from both parties tying questions about energy policy to the long-standing political disagreement about climate change and global warming. This election may prove to be a referendum on the Obama

administration’s Clean Power Plan and multi-party agreements on climate change, as well as on fracking regulations, the future of clean energy, and U.S. dependence on foreign oil. Secretary Clinton and Senator Sanders, in particular, have spoken about increasing regulation on, if not outright banning, fracking, and also about limiting energy exploration activities on public lands. The Republican candidates have spoken less about regulation of the oil and gas industry and more about the need to secure America’s energy future by reducing reliance on oil supplies from the conflict-ridden Middle East and creating new energy jobs on American soil.

Where global warming is concerned, Democrats are proposing stricter and more comprehensive climate change mitigation plans, while many Republicans remain skeptical that climate change is occurring and/or stringently oppose costly regulations on those industries responsible for the vast majority of carbon emissions.

Government Regulation I n a year when many primary voters view “establishment” candidates with acute distrust, the

remaining presidential candidates have increasingly sought to differentiate themselves based on their views of federal regulation and the extent to which the government should intervene

in the activities of corporates. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act and the enforcement authority of agencies such as the Consumer Financial Protection Bureau, Federal Trade Commission, and Department of Justice have featured prominently in the primary election debate about the role government should play in M&A activity, banking regulation, and the prosecution of corporate wrongdoers.

In the event that the Democratic nominee wins the presidency on November 8, 2016, expect the Department of Justice and Federal Trade Commission to continue to challenge M&A activity that the government considers anti-competitive or that could potentially lead to over-consolidation in a given industry. A victory for Mr. Cruz in the general election will likely result in the significant relaxation of government regulations on businesses, while Mr. Trump has come out quite strongly in recent months against American companies using legal loopholes to move any portion of their operations abroad.



Republican and Democratic Stances: Overview 1

TPP

Inversions

Trump ■Opposes TPP.

■ Trump has asserted that TPP “was designed for China to come in, as they always do, through the back door and totally take advantage of everyone.” (Trump, Republican Primary Debate, 11/10/15 )

■ Adheres to the party line that inversions can only be stopped by a broader revamp of the tax system that lowers the corporate tax rate for U.S. companies.

■Has proposed cutting the top corporate tax rate from 35 percent to 15 percent.

Cruz ■Opposes TPP.

■ Claims TPP would undercut U.S. immigration laws and take jobs away from working-class Americans.

■ Adheres to the party line that inversions can only be stopped by a broader revamp of the tax system that lowers the corporate tax rate for U.S. companies.

■Has proposed a 10 percent flat tax on all individual income from wages and the elimination of payroll tax and corporate income tax in favor of a 16 percent business flat tax.

Clinton ■Has opposed TPP since 10/7/15.

■Her anti-TPP stance puts her at odds with the Obama administration and her previous remarks that she hoped the deal would become the gold standard in trade agreements.

■Opposes inversions and has a detailed legislative plan to curb them.

■Has advocated for congressional action to end inversions. Wants to target inversions that are likely to be the most abusive via a 50% merger threshold and implement an “exit tax” on the untaxed overseas earnings of multinationals that leave the U.S.

Sanders ■Opposes TPP.

■Has tweeted: “We need trade policies that promote the interests of American workers not just the CEOs of corporations #StopTPP” (@SenSanders, 10/5/15)

■Opposes inversions and has proposed rules to curb them.

■ Sent a letter in March 2016 to Treasury Secretary Lew proposing new tax rules aimed at preventing companies from borrowing against overseas earnings without paying U.S. taxes. The Treasury Department issued temporary regulations on inversions and earnings stripping less than a month later.

1 Given the delegate math and unlikely path to the nomination, Governor John Kasich was not included in the issue stances.


Overview: Continued

Energy Policy and Climate Change

Trump Cruz Clinton Sanders ■Has stated that he does not believe in anthropogenic climate change.

■ “I am not a great believer in man-made climate change.…I know it’s probably a killer with this room – but I am not a believer. Perhaps there’s ... a minor effect, but I’m not a big believer in man-made climate change.” (Trump, The Washington Post, 3/22/16)

■ Rejects claims that scientific evidence legitimizes climate change.

■ “The scientific evidence doesn’t support global warming....Climate change is the perfect pseudoscientific theory for a big government politician who wants more power. Why? Because it is a theory that can never be disproven.” (Cruz, NPR, 12/9/2015)

■ Stated opposition to Keystone XL Pipeline in September 2015 and has since strengthened her position by arguing for a clean energy future, urging the U.S. to become a world leader on climate change and, in February 2016, calling a ban on fossil fuel E&P on public lands a “done deal.” (Clinton, The Hill, 2/5/16)

■ “I won’t let anyone…deny our economy the benefits of harnessing a clean energy future, or force our children to endure the catastrophe that would result from unchecked climate change.” (Clinton, TIME, 11/29/15)

■ Believes anthropogenic climate change is real and already causing devastating harm to the planet.

■His climate change plan includes a tax on polluters (corporations), banning E&P in the Arctic, ending offshore drilling, and stopping pipeline projects like KXL.

■Has called government regulation a “stealth tax that is larger than the amount the Internal Revenue Service collects each year from corporations and individuals combined.” (Trump, The Washington Times, 2/7/12)

■ Frames his opposition to the size and power of government in categorical terms. “We should shrink the power of the federal government by every and any means possible. What does that mean? That means eliminating unnecessary or unconstitutional agencies.” (Cruz, 2016 Campaign Website)

■Has advocated for a consumer- and everyday investor-first approach to regulation.

■ Believes that regulators are not sufficiently empowered and lack the tools they need to fully protect the economy.

■ Believes government regulation of Wall Street is compromised. “The reality is that Congress doesn’t regulate Wall Street. Wall Street, its lobbyists and their billions of dollars [that] regulate Congress. We must change that reality, and as president I will.” (Sanders, Speech on Wall Street and the Economy, New York, 1/5/16)

Government Regulation


Conclusion

The 2016 presidential election is already being billed as the most expensive in history—total campaign spending could top more than $5 billion according to some estimates—but the value of its impact on U.S. companies and multinationals operating in the U.S. could be much greater.

From the fate of corporate inversions to the future of energy and climate change regulations, never before has so much ridden on the outcome of a single vote.

The president sworn in on January 20, 2017, must be prepared to grapple with terrorist threats at home and abroad, the effects of a warming planet, and an unresolved immigration policy—all while preventing another Great Recession and unifying a divided electorate.


Understanding the current political state of play in the run-up to November 8 and preparing for the new regulatory landscape under the next administration are critical imperatives for companies operating in the United States.

10 | 2016 | BRUNSWICK ©

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2016 U.S. Presidential election brief