There are three possible outcomes in the upcoming midterm elections: Republicans retain control of both houses of Congress, Democrats take the House but not the Senate, or Democrats win big and seize control of both the House and the Senate.
A split Congress is the most likely outcome, with Democrats winning the House but not the Senate. Democrats need a net gain of 23 seats to take the House, a margin of victory well within the norm for midterms, when the president’s party typically loses ground. In the 2010 midterms, President Obama’s Democrats lost 63 seats. In the 2006 midterms, President Bush’s Republicans lost 27 seats. In both cases, the president’s party lost control of the House.
Even if Democrats win both houses, President Trump would be able to veto Democratic legislation, and there’s no chance Democrats will have a veto-proof majority. So there aren’t likely to be major policy changes for the next two years. The Trump tax cuts and other GOP measures affecting business and markets will stay in place.
But the outcome in November could still trigger changes that will affect investors. Here’s the outlook for six pocketbook issues, plus the controversial investigation of special counsel Robert Mueller:
The overall direction of stocks. Markets have probably priced in a Democratic victory in the House, and split control of Congress. If so, there might be a traditional relief rally once the election is over. Stocks typically struggle in the weeks before a midterm, then rise once the voting is over. If Republicans surprise by keeping control of Congress, that opens the door to further tax cuts and other business-friendly measures, which would probably give stocks an added boost. But if Democrats sweep both houses, markets could take it as a sign voters want a rollback of the Trump tax cuts, more regulation and more costly social programs. That could ding stocks.
[See why a Democratic sweep in November could hurt stocks]
Taxes. Republicans aren’t done cutting taxes. They still want to make permanent some of the temporary tax cuts that went into effect this year, while also perhaps cutting the capital gains tax. If they keep both houses of Congress, that’s likely to happen. But Democrats want to undo some of the Trump tax cuts, which means they’ll block any further tax cuts in a split Congress. They won’t be able to roll back the Trump tax cuts, however, as long as a Republican is in the White House.
Trade. Trump is waging his protectionist trade wars with little input from Congress, but he will need a Congressional vote of approval to enact the revised version of the North American Free Trade Agreement he’s been working on. If Trump does get a three-way deal that includes both Canada and Mexico, the current Congress could ratify if in a lame-duck session after the election. A Republican-controlled Congress would probably do the same next year. But Democrats could scuttle a new NAFTA deal if they gain at least one chamber and simply want to obstruct Trump’s priorities. That’s one reason Trump wants to get the deal done this year. Markets would cheer a deal that either modestly revises NAFTA or leaves the original deal in place. If negotiations broke down and Trump withdrew from NAFTA, markets would turn ugly.
Health care. There’s a slim chance a split Congress could pass a bipartisan health care law, along the lines of one introduced last year, that would shore up the Affordable Care Act and provide a few additional options for people struggling with high out-of-pocket health care costs. But that would require bipartisan cooperation in what will probably be a toxic political environment. If Republicans control Congress, they may try again to repeal the ACA, even though the move was unpopular with voters and Republicans lacked a backup plan. If Democrats control both houses, they could start pushing elements of Bernie Sanders’ Medicare for all plan, which Trump would veto if anything passed. But Dems could make this a plank of their presidential campaign in 2020.
Drug prices. Many Democrats favor new laws to cap or reduce prescription drug prices—something Trump has advocated, but not acted on. The drug industry is a formidable lobbying power, however, and has held off efforts to give Medicare more negotiating muscle, and lower prices in other ways. With a split Congress, Republicans would probably kill any new drug-pricing legislation. But a fully Democratic Congress could pass legislation to lower drug prices, and dare Trump to sign it.
Infrastructure. Many Democrats support new infrastructure spending, as Trump does. So this is one area where a split Congress might be able to agree on legislation. The problem is, there’s no money, and Congress may be unwilling to add even more to annual deficits that are approaching $1 trillion per year. So meaningful action is unlikely, under any election scenario.
The Mueller probe. The outcome of the 2018 midterms could have momentous implications for special counsel Robert Mueller’s investigation into Russian interference in the 2016 elections, and other things. If Republicans pull a surprise upset and hold onto both houses of Congress, that could embolden Trump to fire Mueller, as he has tacitly threatened to do for months, since a Republican Congress would be less inclined to hold hearings or further investigate. But if Democrats take at least one house, they seem likely to launch investigations into nearly every Trump controversy. Trump might be less likely to fire Mueller if he knew Democrats with subpoena power would pounce.
That suggests a modest Democratic win in November may be the best path to an orderly conclusion to the Mueller investigation, and whatever comes next. But 2019 looks uproarious, no matter who wins.
- The gaping hole in Trump’s economic boom
- Why the Manafort verdict should worry Trump
- Here’s the risk for Trump in Michael Cohen’s guilty plea
- Some Republican approve of Russia’s help in elections
- Socialists are coming for the Democratic party
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman