Election Day Brings Major Changes to Washington - An Analysis from Arent Fox LLP
An Analysis from Arent Fox LLP
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The election of Sen. Barack Obama to become the 44th President of the United States and the widely anticipated shift toward a more Democratic Congress will bring major changes to domestic and foreign policy, which will have a major effect on our clients’ business both here and abroad. The Government Relations Department of Arent Fox has the following initial analysis and commentary on yesterday’s election results:
The New Congress
Although some congressional districts remain too close to call, it appears the Democrats will now control more than 250 seats in the House of Representatives and at least 56 seats in the Senate. In the House, Democrats unseated at least 10 Republican incumbents and captured eight open Republican seats. In the Senate, Democrats picked up Republican seats in North Carolina, New Hampshire, Virginia, New Mexico and Colorado, but did not reach the 60 seat target necessary to stop Republican filibusters of Democratic priority legislation. Sen. Norm Coleman in Minnesota has won by 762 votes out of 2.9 million cast, which will trigger a recount. Sen. Saxby Chambliss of Georgia apparently has not won re-election by more than 50 percent of the vote, meaning he faces a mandatory run-off election in the next several weeks under that state's law. This is a net gain of at least 20 seats in the House and five in the Senate.
In all, there will be more than 25 seats in the 111th Congress that changed party control due to the election, with only a few switching to Republican control. This party shift means crucial changes in some regions of the country. For example, in New England, there are now no Republican Members serving in the House of Representatives. Exit polling indicates many Republicans lost due to the combination of concerns about the economy, the direction of the war in Iraq and general anti-Republican sentiment.
The new Congress will not be seated until January 5. Before then, it is expected a lame-duck session of the current Congress will convene during the week of November 17 to consider new legislation aimed at stimulating the US economy. During this session, both parties will consider who will be their leadership and we can expect some movement on chairmanships and designations of ranking Republican members of committees and subcommittees that will shed light on the initial agendas of those panels. Although the 56 Democratic seats in the Senate do not guarantee an end to Republican filibusters, they will make it more difficult for Republicans to stop legislation on the Senate floor. In addition, because of the wider majorities, House and Senate Democrats stand to benefit from a commensurate shift in Committee majority-minority ratios, which could facilitate enactment of the Obama agenda.
Predictions for the New Congress
With the economic downturn and consumer confidence at all time lows (and Congress’s approval rating at an all time low), the first order of business in the House likely will be new efforts to revive the ailing economy. The new Congress’ second priority will be a timetable to end the war in Iraq and to reduce the presence of US troops there.
Unlike the current Congress, where legislation faces Republican filibusters or veto threats from President Bush, as noted above, the increase in Democratic Senators in the Senate will make avoiding Republican filibusters far easier. A number of Republican Senators who are up for re-election in 2010 may think twice about appearing obstructionist given the apparent popularity of President-elect Obama, which could facilitate consideration of some issues that do not have to be as partisan such as global climate change. Changes in the leadership of several key committees and subcommittees also will change the direction of Congress in 2009.
Congressional Committees and Leadership
With the continuation of Democratic control in the House and Senate, only a few Democratic Committee Chairmen will change in 2009. In the Senate, Vice President-elect Joe Biden will relinquish the chairmanship of the Senate Foreign Relations Committee, with Sen. John Kerry likely taking his place. The media also has speculated that Majority Leader Harry Reid may decide to remove Sen. Joseph Lieberman from his position as Chairman of the Senate Homeland Security and Government Affairs Committee due to his active and visible campaign support of Sen. McCain.
On the minority Republican side, there will be a much greater number of changes among Ranking Members of several committees and subcommittees. Sen. Lisa Murkowski of Alaska will assume the Ranking Member position on the Senate Energy and Natural Resources Committee, which Senator Pete Domenici of New Mexico has held. She is up for re-election in 2010 and will need to assess how best to protect her state’s interest in expanded oil and gas drilling and exploration from this position. Sen. Chuck Grassley of Iowa will remain a powerful Ranking Member on the Senate Finance Committee, which means that he is likely to continue investigating the practices of nonprofits and pharmaceutical and medical device companies.
Speculation about the possible future roles of Sen. Ted Stevens of Alaska and Sen. Robert C. Byrd of West Virginia has risen in recent weeks. Sen. Byrd is the Chairman of the Senate Appropriations Committee and Sen. Stevens is a powerful member of the Appropriations Committee and should either of these senior Senators be replaced, the makeup and direction of several positions in Senate leadership will change even more dramatically. The Democratic successor to Sen. Byrd is Sen. Daniel Inouye of Hawaii. The leadership of the Labor, Health and Human Services, Education Appropriations Subcommittee remains unchanged with Tom Harkin of Iowa as Chairman and Arlen Specter of Pennsylvania as the Ranking Minority Member.
House Leadership elections will begin shortly. Changes in the Democratic leadership are expected to be minimal (with the possible exception of House Democratic Caucus Chair Rahm Emanuel potentially leaving the Congress to become White House Chief of Staff), while disappointed Republicans will consider major changes in their leadership as a result of the electoral defeats and we expect that Minority Leader John Boehner and Minority Whip Roy Blunt will face challenges from within their caucus. Rep. Adam Putnam of Florida has already announced he is stepping down from House Leadership.
Among House Chairmen, Chairmen Barney Frank of the Financial Services Committee, John Dingell of the Energy and Commerce Committee and Dave Obey of the Appropriations Committee will likely remain and be key allies for quickly moving the Obama Administration’s priorities.
Predictions on Priority Issues as the New Administration and New Congress Begin
The election of Sen. Obama with more than 345 out of 538 electoral votes, a record turnout and an overall percentage win by a 52% to 46% in the popular vote provides a mandate to the new Administration. We predict the followingfive major topics will be high priorities for the new Obama Administration and of interest to our clients and friends:
More than 60 percent of voters on Election Day identified the economy as the most important issue facing the country. The second highest priority issue, the war in Iraq, was listed by only 10 percent of voters. As a result, the new Administration is expected to focus initially on the economy. In addition to providing solvency to the financial markets, the Emergency Economic Stabilization Act enacted by Congress in October focused on a limited number of taxpayer items such as tax breaks for investments in renewable energy, an extension of alternative minimum tax relief, a continuation of the child tax credit and an extension of several smaller business tax credits. A more focused effort on individual homeowners and greater unemployment compensation is expected to be one of the new Administration’s first priorities (unless the lame-duck Congress enacts a package satisfactory to the Obama Administration). Efforts to offset the cost of such a stimulus package will likely come from more restrictive corporate tax policies.
President-elect Obama repeatedly stated he would not increase taxes for American families making less than $250,000. Families earning higher than $250,000 will face higher personal income taxes, primarily due to the expiration of a temporary tax cut for high income earners enacted under President Bush. Those cuts included a lowering of the estate tax, a lowering of the tax on capital gains and dividends to 15 percent. In addition, the legislation also lowered the top four income tax brackets, with the top rate falling to 35% from 39.6%. We predict corporate income taxes will also increase with an end to an unspecified list of tax credits and deductions used by corporate America.
Since tax laws often are used to create economic incentives for Administration priorities, increased tax incentives should be expected for industries and programs embraced during the Obama campaign such as clean energy and job retraining. In contrast, tax deductions for programs and activities not embraced by the Obama campaign are expected to be reduced or eliminated. Tax policy may also be changed to penalize activities disfavored by the Obama campaign including off-shoring of US jobs.
Health Care Reform
A continuing theme in President-elect Obama’s campaign was the need to reform the American health care system. His planned expansion of health care depends upon an overall increase in heath care spending by approximately $50 to $65 billion. This spending could be offset budgetarily by not extending some of the temporary tax cuts enacted under President Bush that expire in 2010.
The Obama health reform plan would require insurance companies to cover pre-existing conditions; create tax credits for small businesses to offer health insurance to their employees; cover a portion of catastrophic health care costs of employees; require an unspecified minimum amount of coverage by large employers; allow the public to purchase health insurance plans offered to federal employees; allow importation of foreign manufactured drugs; and increase the use of generic pharmaceuticals.
President-elect Obama has spoken against cuts to Medicaid and emphasized the impact of Medicaid spending on low income communities and the hospitals that serve them. While in the Senate, Sen. Obama cosponsored legislation to increase access to the Medicare Part D Prescription Drug Plan and spoke in favor of direct government negotiations for the purchase of prescription drugs in an effort to lower the price to the federal government.
Organized labor strongly supported the Obama campaign. One of the top legislative priorities of unions is passage of the Employee Free Choice Act, often referred to as the “card check” bill. Under current law, employers have the right to determine the manner by which the company will recognize the choice of union representation by their employees – either by a secret vote or by submission of union selection cards. Under the Employee Free Choice Act, companies will be required to recognize either option and will only have the right to challenge the use of card check procedure if fraud or intimidation was alleged.
Although the choice of how union representation is chosen may seem inconsequential at first glance, it is believed that under a card check system employees will be more likely to support a union, possibly due to peer pressure from other employees. If this is indeed the case, enactment of the card check bill is expected to increase union membership while having major implications for large employers that have strived to remain non-union. A few Republicans may support the card check legislation, bringing this Obama goal into reach. This is likely to be a key issue that galvanizes the Senate minority and will provide some insight into the cohesiveness of that caucus or the lack thereof.
America’s interest in major change to energy policy has typically varied with the price of gasoline. Interest in alternative energy sources and fuel efficiency grew dramatically this year as the price of gas rose sharply this summer. If President-elect Obama chooses to move forward with his energy plan, it is expected to include the imposition of a windfall profits tax to pay for greater tax incentives for hybrid vehicles and for investment in alternative energy programs. We also expect that he will push for greater mandated use of alternative energy and the imposition of a mandatory cap and trade program for greenhouse gas emissions with the goal of reducing them by 80 percent by 2050. Clean coal technology and development of a Trans-Alaska natural gas pipeline have also been supported by the President-elect.
It is unclear if the new Congress will focus immediately on energy policy. Gas prices have dropped significantly over the past since the summer. If gas prices remain low, a lack of public interest in and the financial cost of tax incentives to encourage the use of alternative energy sources may be too high for the Obama Administration to overcome.
What to Watch For
With the campaign theme of “change,” President-elect Obama is expected to move quickly to identify his choices for Cabinet Secretaries and key staff in the White House. To encourage quick enactment of his legislative priorities, draft economic legislation is being circulated for hearings as early as December in the current Congress. An initial challenge for the new President will be to decide whether to push legislation that appeals only to Democratic Members of Congress or bipartisan legislation that has a greater chance of emerging from Congress for his signature.