With Election Day less than three weeks away and early voting having already started in a number of states, it’s a good time to analyze the likely outcome of the election and the resulting policy implications. According to expert, Dan Clifton, of Strategas Research Partners, our country’s economic volatility has created political volatility. Prior to 2008, our country had experienced a steady 3% GDP real growth for many years. Since then we’ve been hovering around a steady 2% real growth. There have been eight national elections during this period and the party in power has changed in seven out of eight of those elections. Mr. Clifton posits that the reduction in the GDP real growth has caused this political volatility. When we swing from party to party as we have been doing over the last decade plus, the result is that our policies also swing back and forth like a pendulum creating uncertainty for business and taxpayers. Experts further contend that these swings have also contributed to the lack of cooperation and compromise on the Hill – why try to come up with a compromise when it’s likely your party will be back in power in a few years and if you do compromise it can be held against you in the next primary?
As we know, midterms are usually a referendum on the then current President’s popularity, which at this point does not bode well for President Biden or his party. On average, in recent decades, the party in power loses an average of twenty-nine seats in the House due to the midterms. This year the Republicans only need to gain six seats to take control of the majority in the House. Unlike the House, over this same period, the party in power has only lost, on average, just one seat in the Senate. Only Franklin D. Roosevelt and George W. Bush saw their parties gain seats in the House during the midterm elections, and each were dealing with extraordinary situations. Additionally, typically Republicans gain three to six points in the polls from Labor Day to Election Day.
For those of you who care about the odds – the most recent betting models show the odds of Republicans gaining control of the House and Senate at being just slightly over 50% with the odds of Republicans controlling the House and the Democrats controlling the Senate hovering around 40%. Interestingly, if the election had been held in August, most pundits believed the Democrats would have held both the Senate and the House, but if the election were held today most of the experts believe the Republicans would take back the House but the Senate would remain 50-50. If the normal Republican gain between Labor Day and Election Day occurs this year, then the Senate will flip to the Republicans. An interesting rumor is that Senator Mitt Romney has chosen not to endorse Senator Mike Lee in the hope that the independent Evan McMullin will win allowing the two of them to control the Senate in the same way that Senators Joe Manchin and Kyrsten Sinema have done the last 2 years.
Different factors favor one party over the other – for instance, increased gas prices favor the Republicans while decreased gas prices favor the Dems. The Supreme Court’s decision overturning Roe v. Wade has led to what looks to be the largest voter mobilization of women under the age of 40 in our history. Experts have recently observed that when former President Trump is in the news Republican enthusiasm is dampened and conversely Democrats gain enthusiasm. Recent polls have identified inflation, jobs and the economy and immigration as the most important to voters going into this election. These issues tend to favor Republicans. Thus, the voters are seeing that their most important issues are in line with what is perceived to be Republican bread and butter issues.
As we saw during the 2006 presidential election, anything can happen that can significantly change the election (remember the FBI reopening the Clinton e-mail inquiry on October 28 and then clearing her 2 days before the election). So if gas prices go down, or President Biden’s approval rating goes up (somewhat unlikely at this point) or former President Trump is indicted (also unlikely at least before the election) or the pollsters have somehow ignored or failed to account for that massive group of new women voters under 40, or one of the Republican or Democrat contenders for the Senate makes a major mistake, then all of the above can change. As of now, though, the polls suggest that we are heading for a Republican takeover of the House and potentially the Senate.
Adding to this mix is that the vote in Pennsylvania will take a long time to be counted so it is unlikely we will know who will replace Senator Toomey on election night. In Georgia if neither candidate gets over 50 percent of the votes on November 8, which is quite possible, there will be a runoff on December 6th between the two top vote-getters - meaning it is conceivable we won’t know who controls the Senate until December!
In the unlikely event that there is a clean sweep by the Democrats, we would see an emphasis on the childcare credit, healthcare (expanded Medicaid), clean energy and infrastructure. These policies would require additional taxes to fund them. If the Republicans control the Senate (but not with 60 Senators) and the House, President Biden still remains. Perhaps some legislation would emerge where the Republicans would sweeten the deal enough for the President to sign off on it – for instance making some of the Trump tax cuts for individuals permanent rather than having them automatically expire on December 31, 2025 in exchange for legislation that would promote the childcare credit, expand healthcare, etc.
If we end up with a Republican House and a Democratic Senate then we’ll see a lot of gridlock, but an active Lame Duck session where we could see an improved childcare credit, an extension of the R & D tax credit, and other tax breaks for corporations.