With the midterm elections over and Congress now firmly in the Republican Party’s control, President Obama must face his final two years in office with little legislative support. While it remains to be seen exactly how the new balance of power will manifest itself in terms of a working relationship in Washington – with a legacy to be cemented, voter promises to uphold and the foundations of 2016 candidacies to be laid – both sides of the isle are currently preaching bipartisanship. That, of course, is standard post-election politics, and it’s fair to wonder how the new dynamic will impact major issues such as health care reform, financial regulation, and the economy once time for governing ultimately commences.
One of the most important considerations lingering in the aftermath of the elections is what increased Republican power means for our wallets. The overarching notion seems to be that more Republicans in Congress equates to less government regulation and greater business prosperity, perhaps at the expense of the little guy. And, if history is any indication, we should also continue to see stock market gains, as the S&P 500 has advanced 8.6 percent annually when there has been a Democratic president and a Republican Congress.
But since so much remains unclear, from the future of corporate tax reform and the federal minimum wage to the fate of Fannie Mae, Freddie Mac and the Export-Import Bank, we decided to reach out to some of the leading experts in the fields of economics, public policy and political science for insights into the future of consumer wealth.
Based on these conversations, we’re making a number of bold predictions regarding the fate of our wallets in this new political environment. Check them out and let us know what you think! 1. There Will Be No Government Shutdown:
One of the reasons our recovery from the Great Recession has been so halting is that government-made crises have hampered growth. We are unlikely to see another government shutdown, however, because the last one was simply too politically damaging.
“While the ideological distance between Congress and the president is large, the incentives to work together on a few key issues is even larger,” says Michael S. Rocca, director of the Political Science Honors Program at the University of New Mexico. “Neither will want to get blamed for a government shutdown heading into a presidential election, and both would like to take credit for a growing economy.” 2. Political Gridlock Will Persist:
Just because a government shutdown is unlikely does not mean things in Washington will work smoothly. Most of the experts we consulted expect to see much of the same from our nation’s political leaders – very little. Sure, this Congress might be able to agree on more than in years past, but President Obama still carries a very powerful veto pen.
“Whether Republican control of both chambers will lead to more cooperation between the White House and Congress, I think we are in a ‘wait and see’ pattern here,” says Craig M. Burnett, an assistant professor of political science at the University of North Carolina, Wilmington. “I’m skeptical that we will see significantly more cooperation, given the rather icy relationship that Republican congressional leaders have with President Obama.”
Ultimately, a lack of action on the part of politicians could be good news for the economy and our wallets. The economy has steadily moved forward in recent years, with a few notable exceptions like the government shutdown, and a lack of intervention on the part of politicians will allow the fundamentals of the economy and corporations speak for themselves. 3. The Stock Market Will Continue to Rise:
History is firmly on the stock market’s side. Not only has the S&P displayed outsized gains during years where a Democratic president is countered by a Republican Congress, but the third year of a president’s term is also historically rewarding. Since 1926, the S&P 500 has gained roughly 17 percent in such third years. We’ve also historically seen 25 percent annualized returns in the period from a midterm election in November to the following April.
“I would expect the stock market to trend upward (with dips, of course) at a modest pace as long as the economy continues its (also modest) growth and employees start seeing larger paychecks,” says Gary C. Jacobson, distinguished professor of political science and director of undergraduate education at the University of California, San Diego. “I agree with those who think that the slow recovery from the Great Recession stems from weak demand by consumers whose real incomes have been stagnant even when they have jobs.” 4. Fannie Mae & Freddie Mac Will Survive:
There has been a lot of talk about what to do with Fannie Mae and Freddie Mac, but this is unlikely to result in the housing giants being destroyed.
“Killing Fannie and Freddie, as some Republicans advocate, will not be possible without negative effects on the housing industry,” according to Steven S. Smith, director of the Murray Weidenbaum Center on the Economy, Government, and Public Policy at Washington University in St. Louis. And with the housing market already representing a drag on the economic recovery, such a move would not be politically advisable in the run-up to 2016. 5. There Will Be No New Tax Hikes:
With more Republicans in Washington, rising tax rates are one thing we will not see from this new-look Congress. That’s undoubtedly good news for those of us who feel we are already forking over too much to Uncle Sam. 6. The Federal Minimum Wage Will Rise:
While this is a politically tricky issue, there seems to be increased support for higher minimum wages. Already, four traditionally red states – Alaska, Arkansas, Nebraska and South Dakota – voted to raise their minimum wage in the 2014 midterms. And with President Obama having already upped the pay of federal workers and only two states – Wyoming and Georgia – having lower wage floors than the federal minimum wage, the writing seems to be on the wall for a change, especially with the issue of inequality gaining momentum. 7. Some Form of Corporate Tax Reform Will Take Place:
Corporate tax reform is high on the GOP’s agenda and it seems reasonable to expect some nature of bipartisan support for this issue considering President Obama’s public remarks regarding tax inversion deals. If an accord is ultimately reached, perhaps enabling corporations to repatriate income earned overseas, it would be a significant victory for the American economy.
“There is no question that Republicans will push for corporate tax reform, which would include lowering the high average rate and closing some loopholes,” says Donald Downs, the Alexander Meiklejohn Professor of Political Science, Law, and Journalism at the University of Wisconsin. “Tax reform would also include lowering or eliminating the tax on bringing profits earned in foreign countries back to the U.S., which would place up to 2 trillion dollars back into play in the domestic economy. These measures will be among the very first things a Republican Congress will initiate come January.” 8. The CFPB Will Be Slowed Down:
The Consumer Financial Protection Bureau is one of the federal agencies whose oversight the Republicans will wish to revisit. While it is unlikely the organization will experience significant changes, such as complete elimination, there could be some alterations to how it is governed.
According to the American Bankers Association, we can “expect increased scrutiny in the Senate on the CFPB’s proposals and a continued push to change the structure of the CFPB from a single director to a five-member board and a push to subject the CFPB to the congressional appropriations process.” 9. No Significant Health Care Changes:
While a full repeal of the Affordable Care Act would be high on the wish list of many Republicans in the next legislative session, President Obama is not going to allow his signature act to date to be cast aside. However, if the GOP plays its cards right, slight alterations and improvements to the law could be politically viable. One such aspect of the law that is likely to be on the table is the medical device tax. 10. The Keystone Pipeline Will Pass:
This is an extremely tricky issue given the president’s environmental stance, but the Republicans could garner enough votes to bypass the need for his approval. Undertaking this project would lead to the creation of more jobs and perhaps lower energy prices for American consumers. 11. External Factors Will Have the Biggest Impact On the Economy:
While the midterm elections will certainly have an impact on the economy, factors beyond our borders will matter a whole lot more. This includes our fight against ISIS, the battle over Ukraine, the European recession, and the state of the global oil crisis.