What Effect Would a Democratic Win Have?

DC think tank considers the ramifications

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With the November 7 midterm elections close at hand, many political analysts in Washington are predicting that the Democrats will indeed win back the 15 seats needed to take control of the House of Representatives. Republicans worry they will lose 23 to 27 seats in the House and they will also lose the Senate unless Sen. George Allen can pull out a win in Virginia.

Washington Analysis, an economic, political, and regulatory research firm in D.C., says that in the Senate, Democrats "are only a slight underdog to pick up the six seats needed to wrestle control from the GOP." Indeed, a Democratic takeover of the House or Senate or both would result in "considerable changes to the legislative environment for investors," the research firm says.

Under a Democratic Congress, life insurance companies would benefit as the estate tax would be less likely to be repealed, but changes to Sarbanes-Oxley would be harder to come by, Washington Analysis predicts. Democrats oppose exempting companies from SOX. Also, extending the 15% capital gains and dividend tax rates again would be an "arduous" task under Democrats. As for the Alternative Minimum Tax (AMT), there is little chance that changes will be made to the AMT under either a Democratic or Republican Congress. Stopgap measures to raise exemptions so that fewer middle-class taxpayers are hit by AMT is a more likely outcome under both parties, Washington Analysis says.

Democrats will also push for more regulation of hedge funds, and to require hedge funds to register with the SEC. But Republicans, too, have been increasing their scrutiny of hedge funds. Senator Charles Grassley (R-Iowa), who leads the Senate Finance Committee, recently pressed the heads of the Treasury Department, SEC, and other federal agencies to tell him what information hedge funds are required to report to them.

As for healthcare, California Republican Bill Thomas, chairman of the House Ways and Means Committee, stated in a recent release that Democrats would repeal the Medicare prescription drug benefit that was created by Republicans, and instead propose a government-run prescription drug plan that "would cost billions in additional spending, increase seniors' average premiums by more than $132 per year, and reduce access to life-saving breakthrough drugs." But a House Democratic aide says Democrats have stated "repeatedly" that they are not interested in repealing the prescription drug plan, or Part B, noting that the most substantive change Democrats would make to Part B would be requiring the government to negotiate lower prices.

Plus, additional incentives for Health Savings Accounts (HSAs) are "unlikely if Democrats control even one house of Congress," Washington Analysis predicts.

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