The Republicans’ victory in taking over the House of Representatives in the midterm elections on Nov. 2 means that they will do their best to repeal health care reform and loosen the reins of regulation—particularly regarding the implementation of the Dodd-Frank Act. But Democrats maintained control in the Senate, which will make it difficult for anything to get done.
At press time, nine House races were still undecided, but Republicans gained 60 seats, giving the GOP 240 seats and Democrats 187. In the Senate, the Republicans failed to gain enough seats to wrest control from the Democrats, who hold a 53–47 majority.
Joe Lieber, senior policy analyst for Washington Analysis, gave his post-election predictions on a conference call a day after the election. He said he sees no real “material deficit reduction” changes coming from the Republicans, as that would require cutting entitlement programs like Social Security, Medicare and Medicaid. Cutting the deficit, which was the Republicans’ and the Tea Party’s rallying point, also means making moves on the “revenue side,” Lieber said, and “Republicans are not going to do much on the revenue side.”
As for the Bush tax cuts, which will be “front and center” for the financial markets and for Congress when it returns on Nov. 15, extending the tax cuts does not look likely during the lame-duck session. Rather, Lieber said, “the odds favor extending the Bush tax cuts in the first quarter” of next year. The bottom line on the Bush tax cuts: Capital gains and dividends will be somewhere between 15% and 20%, Lieber said, which “will be positive news for the market.” All of the middle-class tax cuts, he said, will be extended, and all of the “upper income tax rates could go up to 39.6%; but it’s our opinion that the starting threshold will be $500,000 for those tax rates to go into effect, as opposed to $250,000.”
On the financial services front, Sam Leamann, senior financial analyst at Washington Analysis, said on the same conference call that the House Financial Services Committee, which will now likely be chaired by Rep. Spencer Bachus, R-Ala., will hold a series of hearings on the Dodd-Frank Act and will “pressure the Fed, the Securities and Exchange Commission, and FDIC to go easy in terms of interpreting the Dodd-Frank Act,” which, on the margin, “could be a plus for banks.”