The Democrats' newly won majority in the House brings with it control of powerful committee leaderships that could bring major changes in the congressional agenda for business, investment and the economy. Now, with a possible majority in the Senate turning on a single undecided race Wednesday, complete control of the Congress could give the party an even stronger base for a new business and economic agenda.
Even if Democrats take the Senate, they'll still lack the votes to override a White House veto. But a number of the changes being championed by the incoming party may not require President Bush's signature, according to Charles Gabriel, an analyst with Prudential Equity Group in Washington.
"The significance of them having both chambers is important," said Gabriel, "because they could control the budget process and move a reconciliation bill with less than 60 votes that really could take on taking on Medicare changes, student loan changes, etc. So this is a big day in Washington."
Specific industries could feel the impact of Democrats’ return to power — from energy to pharmaceuticals.
One of the biggest line items in the federal budget, defense spending, is also a potential target for change — a prospect made more likely by the resignation of Donald Rumsfeld as Defense Secretary.
Though widespread opposition to the Iraq war was a major force sweeping Democrats back into power, they’re not expected to look for big cuts in defense spending — for fear of appearing soft on defense in the 2008 presidential election.
“Many Democrats are currently going out of their way to show themselves as strong on national security,” said Greg Kelly, at Susquehanna Financial Group, in a recent research note.
Though overall defense outlays may remain intact, Democrats may shift spending priorities — scaling back big-ticket weapons projects and increasing spending on homeland security, for example.
Regaining control of key committees will also give the Democrats a high-profile platform for hearings on issues like oil industry profits and CEO pay, along with control of oversight committees could bring tighter regulation of industries from utilities to telecommunications to pharmaceuticals.
With Rep. Charles Rangel, D-N.Y., in line to take over the House Ways and Means Committee, control over the federal budget process will shift. Democrats have long opposed a series of tax cuts that have been one of the central accomplishments of the Bush administration, including lower top rates on income and lower taxes on capital gains, dividends and inheritance. Though many of those cuts expire in 2010, any effort to raise taxes will likely face a White House veto.
And with the economy growing, tax receipts rising, and the deficit falling, Democrats have recently backed away from calls to roll back the cuts.
“I don't think we want taxes to move higher at all; the kinds of things we're talking about easily funded about rearranging federal priorities making sure that some of the shelters are closed -- the offshore shelters and things like that,” Sen. Charles Schumer (D, N.Y.) said Tuesday. “But the Democrats are against increasing taxes. We want to become more fiscally responsible.”
In fact, Democrats have been talking about their own round of tax cuts — this time taking on the alternative minimum tax, which originally targeted wealthy taxpayers but was not indexed to take rising incomes into account. As more middle income taxpayers get hit with the AMT, reform has become more popular in both parties.
Democrats may also find that specific policy changes promised on the campaign trail may be tough to enact. Democrats have been much more vocal than Republicans about the need for trade protection, for example. Some Democrats have proposed trade restrictions, especially with China, which has piled up a $70 billion trade surplus by increasing shipments of manufactured goods to the United States. The 110th Congress will have to reauthorize so-called "fast track" authority to negotiate trade deals.
"I think this is the most import issue of ’07," said Gabriel. "This creates creates a vehicle for bashing China and Wal-Mart."
But clamping down on trade with China is easier said than done, according to Stuart Hoffman, chief economist at PNC Financial Group.
“The U.S. and China have very beneficial mutual relations on other issues like North Korea,” he said. “Putting tariffs on the Chinese would not a be a good way to foster cooperation.”
The new Democratic Congress will likely have better luck with another hot issue for employers — the minimum wage. With 18 states already moving to raise floor on workers’ paychecks higher than the federal minimum of $5.15 an hour, the chances of getting a national law passed have improved.
Employers also could see changes in the laws on immigrant workers. Democrats have supported a guest worker program that would provide temporary work visas to immigrants. Democrats also have favored tougher sanctions on employers who hire illegal immigrants. Though the Republican Congress has focused more on preventing illegal immigrants from entering the country, the Bush White House has supported reforms that would include expanding the availability of temporary visas.
One of the major accomplishments of the Bush administration and Republican Congress, the Energy Policy Act of 2005, included a variety of incentives to oil, gas and coal companies, including tax breaks that many Democrats opposed. The Republican-controlled Congress has also backed moves to open areas for oil and gas exploration that Democrats have opposed. Chipping away at various provisions of the law wouldn’t require a new comprehensive bill.
Moves to extend the licensing of nuclear power plants and incentives to new ones could also be rolled back or slowed. And the long-standing stalemate over the disposition of spent nuclear fuel could remain deadlocked by Sen. Harry Reid, D-Nev., who opposes the proposed Yucca Mountain repository in Nevada.
“Unless the Energy Department completes and submits a formal application to the Nuclear Regulatory Commission for a license to build the repository, the next president could simply cancel it,” said Prudential Equity Research analyst Jim Lucier in a recent note to clients.
A Democratic Congress may also move to slow the deregulation of the electric power industry and could favor tighter restrictions on carbon emissions and higher fuel efficiency mandates for the auto industry.
Even before proposing new laws or regulations, Democrats have already called for hearings on oil industry profits; some have favored a “windfall” profits tax.
The pharmaceutical industry will likely be one of the first to feel the impact of the switch in control of Congress. Democrats have long favored using the immense buying power of federal Medicare insurance to negotiate lower drug prices. That could effectively become a cap on prices if lower government-negotiated prices are also adopted by private health insurers.
It could also save the government as much as $60 billion over 10 years, according to Rep. Henry Waxman, D-Calif., who stands to take over leadership of the House Government Reform Committee.
Such a move would hurt profits for large pharmaceutical companies that hold exclusive patents on brand-name drugs. But the move to cut the cost of Medicare drugs could benefit makers of cheaper generic drugs.
Telecommunications policy may also see changes. The pending $67 billion merger of AT&T and BellSouth has yet to be approved by the Federal Communications Commission, where a split along party lines has delayed approval. Though the deal could get clearance during the closing weeks of the lame-duck 109th Congress, a delay until next year could bring hearings on the issue of industry consolidation.
Also up for grabs is the future of pricing policy for Internet users. Telecom providers have been pushing for a two-tiered structure that would allow them to charge more for high-speed access to help underwrite the cost of upgrading their lines. But Democrats have opposed the move, promoting “net neutrality” that preserves the single pricing model now in place.
The financial services industry also could see changes proposed by a Democratic-controlled House, where Rep. Barney Frank of Massachusetts is in line to take over the powerful Financial Services Committee.
One likely outcome would be a reversal of Republican-sponsored controls on Fannie Mae and Freddie Mac, the two congressionally chartered companies that control some 40 percent of the more than $10 trillion market for residential mortgages.
Both parties have favored changes in the Sarbanes-Oxley law, enacted after a wave of corporate accounting scandals, which brought tighter financial controls and greater disclosure. Businesses have said the rules are too onerous and expensive. But Democrats have generally supported the idea of fuller disclosure, especially in areas like CEO pay, which could also become a target.
Democrats have also said they want to roll back interest rates on student loans and ease repayment terms. But it’s not clear where the money would come from to pay for those changes; without higher taxes, the changes could hurt the profits of companies that make student loans.
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