Economic Policy Implications of the Midterms (November 13)

Update 312:  Economic Policy Implications
of the Midterms and the 116th Congress

The result of last week’s midterms will have important ramifications for economic policy during the 116th Congress.  Democrats have taken the majority in the House and will take majority control of key committees setting the legislative agenda.

More than 100 women were projected to win seats in the House of Representatives, easily shattering the record of 84.  Overwhelmingly, they were Democrats, including 30 candidates endorsed by 20/20 Vision (out of 40).

Below, a look at the economic policy implications of last week’s midterms.  

Best,

Dana

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Financial Regulation and Oversight

The Democrats’ winning the House gives Rep. Maxine Waters the gavel of the House Financial Services Committee (HFSC).  Depending on the final seat tally, between 10 and 12 new Democratic members will be added to the Committee. Waters’ vote against S. 2155 and continued opposition to deregulatory overreach will change the tone and direction of the Committee, making it unlikely that any new deregulatory bills get through the House.

Oversight is likely to be a central theme of Waters’ regime. Recent actions by the Financial Stability Oversight Council (FSOC) to de-designate the last remaining nonbank systemically important financial institution (SIFI), as well as staffing and budget cuts at the Office of Financial Research (OFR) are likely to be scrutinized. The HFSC under Waters will also be a bulwark against rulemakings and practices that increase systemic risk; regulators will likely be called in to testify, which will increase public accountability, and perhaps slow down the deregulatory agenda. Kathy Kraninger, a Mick Mulvaney acolyte, looks set to be confirmed as CFPB director by the Republican-controlled Senate, so a Waters-controlled HFSC will be a welcome check on the direction of the Bureau under Kraninger’s tenure.

Democratic Senators who supported S. 2155 didn’t fare well last week.  Sens. Joe Donnelly and Heidi Heitkamp both lost their reelection bids, leaving two vacancies to fill on the influential Senate Banking Committee. The loss of Donnelly and Heitkamp opens the possibility to get different Democratic voices on the Committee, which will hopefully provide some welcome dissent to the Committee’s deregulatory program during the last Congress.  Kyrsten Sinema, the recently-announced winner of the Senate race in Arizona, could wind up with a seat on the committee given her role on HFSC. With Republicans still at the helm, the Committee looks set to continue its confirmations agenda as well as push for a fast implementation of S. 2155.

Tax Policy

During the president’s post-midterm press conference on November 7, he highlighted some legislative areas where he may be willing to work with a Democratic House.  One of those areas was tax policy. In response to a question at Wednesday’s press conference about how he’d pay for his promised 10 percent tax cut on middle-income households, the President said, “if Democrats come up with an idea for tax cuts, which I am a big believer in tax cuts, I would absolutely pursue something, even if it means some adjustments.”

While the news cycle will focus mainly on the oversight that is sure to come, as well as the messaging bills that will be introduced, the main area in fiscal policy to watch will be the possible 10 percent tax break for middle class households. The main question now is how Democrats will propose to pay for the cut. Some have proposed bills to expand the Earned Income Tax Credit, financing an increase in the program with tax increases on corporations and big businesses.

The policy areas Democrats could mine here would be expanding tax breaks for retirement savings programs, healthcare, and tuition, but many seem to be skeptical of a major overhaul like we saw in the 115th Congress. We can expect several messaging bills and potentially some technical corrections to the Tax Cuts and Jobs Act (TCJA), but it is unlikely that much will pass the Senate, let alone the president’s veto.

Political Reform

Political reform and oversight will be at the top of the agenda for Democrats in Congress come January.  A large majority of Democratic challengers, several of whom will now move into junior roles in the House, made political reform a key platform item on the campaign trail, with almost 200 progressive candidates rejecting corporate PAC money this cycle.

In the 115th Congress, House and Senate Democrats developed a plan entitled “A Better Deal for Our Democracy” (BDD). They managed to tuck some BDD provisions into the spending bill in bipartisan areas like rural broadband access, child care assistance, and infrastructure improvement. In August, the week that Paul Manafort was convicted on eight counts of fraud, Sen. Warren introduced an anti-corruption bill that proposes toughening rules on conflict-of-interest, lobbying ethics, and campaign finance reform. In the Republican-controlled Senate, Warren’s bill has little-to-no-chance of passing. House Democrats, however, are making democracy reform their number one priority in January.

On Monday, Rep. Sarbanes (D-MD) announced that H.R. 1, the first vote in the House, will be a reform package removing obstacles to voting, closing loopholes in government ethics law, and reducing the influence of political money. H.R. 1 would establish automatic voter registration, shift redistricting power from states to independent commissions, overturn the Supreme Court’s Citizens United ruling, expand disclosure mandates, and establish public financing to match small contributions.  Rep. Sarbanes admits that though the bill is unlikely to pass the Senate, it will force political reform issues to the forefront of the legislative agenda for both chambers of Congress.

Other Policy Areas of Note

There are a few issues that emerged as major talking points during this election season that we should keep an eye on moving forward:

• Infrastructure

Infrastructure spending appears to be the best hope for a bipartisan bill in the coming Congress.  Both parties and the president publicly seem to agree that fixing and modernizing America’s infrastructure is a high priority and point of cooperation. This issue has been ongoing for years because a key source of infrastructure funding, the federal gas tax, has not been raised or adjusted for inflation in the last 25 years. President Trump has voiced support for raising the tax, in addition to signing onto a comprehensive spending package, but it remains to be seen if any infrastructure bill will come to fruition. Many observers believe that the two parties are so far apart on key aspects of an infrastructure package that the likely outcome is no bill at all or only a modest one that falls well short of the nation’s infrastructure needs.

• Education

Many Democratic candidates campaigned on improving education at the K-12 and university levels. For K-12 public education, the focus was mainly on increasing funding in general. At the university level, many candidates advocated for reducing the costs of a four-year degree and increasing options for job training programs. With Secretary Betsy DeVos at the head, national changes seem unlikely, but newly elected Dems can work within their districts to improve local public schools and universities.

• Healthcare

Healthcare was a cornerstone of both Democratic and Republican platforms this cycle. Democratic victories in the House will, at the very minimum, mean that further attempts to repeal the ACA will be stopped. It is possible that we will see some proposals pass through the House, with select GOP support, calling for modest expansions in Medicare. There is also likely to be an emphasis on increased protections for the ACA, primarily through oversight rather than legislation. With the Senate firmly locked down by the GOP, it is unlikely that substantial overhauls will be adopted this term.

In the end, it is not clear whether the midterm elections this year saw a true “blue wave” or more of a harbinger of still greater things. The loss of seats in the Senate — all but inevitable given the map, which reverses and favors Democrats in 2020 and 2022 — somewhat obscures the fact that Democrats might end up with their biggest gain in the House since the post-Watergate election of 1974.  This resounding win will mean that Democrats have a strong mandate to press ahead with much needed reforms, forge a progressive agenda to challenge the current GOP status quo, and chart a path to 2020.